2009 -- A Courageous Session

The Florida Legislature took courageous votes during the 2009 session to raise Citizens Property Insurance Corp. rates to better position the government-run insurer to be able to pay its claims on time and to reduce the potential for statewide surcharges following a major hurricane.

Citizens' rates will rise for the first time in three years, but under a 10 percent cap. Another politically tough position was to roll back Florida Hurricane Catastrophe Fund (Cat Fund) coverage to make the program financially sound once more. Private insurers are authorized to replace Cat Fund layers being eliminated with more expensive private reinsurance, so their rates will go up, but also under a 10 percent cap.

Insurance is one of the most far-reaching and politically difficult issues faced by the Legislature each year and like most issues in this group, final decisions usually come during the last week, even the last day. This year was true to form. The Citizens/Cat Fund package (HB 1495), approved in the final hours, allows Citizens' rates to begin to move to an actuarially sound level, capped at 10 percent a year. It cuts $2 billion from the Cat Fund's Temporary Increase in Coverage Limit (TICL) layer this year and establishes a plan to drawn down TICL completely after the 2013 hurricane season, returning this coverage to the private reinsurance market.

The ball is in Gov. Charlie Crist's court now on another huge property insurance bill (HB 1171) approved on the final day. He is deciding whether to veto a proposal allowing large insurers to sell residential policies at rates not subject to approval by the Office of Insurance Regulation (OIR).

The Legislature also preserved the critically important surplus lines industry by reversing the Florida Supreme Court's Essex v. Zota decision (HB 853). The court ruled last fall that surplus lines insurers were subject to OIR rate and form regulation, creating not only rate regulation for the future, but opening the door to lawsuits arising from claims disputes over the last 20 years. Another big property bill (SB 714) was legislation correcting unintended consequences in the condominium association insurance bill passed during the 2008 session.

FIC Helped Drive Consensus

All property & casualty lobbyists were involved in this initiative, but Florida Insurance Council (FIC) lobbyists were among the most active. They worked to get the best deals possible and crafted some of the key language. The big property insurance package launches two critical transitions: A 10 percent-a-year drive by Citizens toward actuarially sound rates following a three-year rate freeze; and a $2 billion a year phase out of the unfunded, $12 billion TICL program in the Cat Fund.

Sound Citizens' rates won't be achieved for years at the snail's pace agreed to; however, it was all the governor and key legislators could support, and it represents a beginning. In addition, one of the most important decisions was that the Legislature did not heed outrage expressed by south Florida legislators and extend the rate freeze.

The TICL phase-out returns more of Florida's hurricane exposure to the private reinsurance market and lessens insurers' dependence on higher levels of coverage in the Cat Fund, which are now “iffy.” That is an improvement because until the New York markets for tax-exempt bonds began to improve in recent weeks, this capacity was “theoretical” only.

Private insurers will face higher reinsurance costs as Cat Fund capacity is reduced and many have been required by Demotech and A.M. Best to secure liquidity facilities or line of credit contracts in the event the Cat Fund cannot timely deliver. They must be allowed to quickly recover these increased costs. The final property package helps through a special recoupment process — much more restricted than earlier versions and less than what the FIC Property Committee believed was needed. But the bill also replaces a rigid OIR prohibition against inclusion in the rate base of costs for reinsurance “duplicative” to Cat Fund coverage.

At press time, Florida insurers, regulators and legislators were waiting to see if the package would satisfy Demotech and A.M. Best, which have threatened to downgrade ratings for Florida insurers if they were relying on a Cat Fund that could not be expected to deliver timely after a hurricane.

Significant Rate Regulation Step

FIC could not take a position on the bill because many of its members would qualify for this exemption from rate regulation. The Florida Insurers Legislative Committee, chaired by FIC member John Rogan of Sunshine State Insurance Company, and including several other FIC member insurers, believes the package gives State Farm and other large insurers an unfair competitive advantage. It has asked Gov. Crist to veto the bill.

State Farm agents — who apparently first proposed the plan and then apparently also got State Farm the company behind it — have created an Internet site enabling their policyholders to e-mail legislators and Gov. Crist to support the package. At least 12,000 e-mails were sent during the final week of the session.

Whatever the outcome, and even though smaller insurers feel — and may well be –at a disadvantage initially, the debate on this bill and its final passage are a historic step for insurance in Florida. It may be the beginning of a monumental thaw and shift away from the most rigid rate regulation in the country. It represents a change in a political and regulatory environment that many insurers found intolerable.

Gov. Crist boasted following the January 2007 special session, when rates for Citizens Property and the private industry were rolled back and frozen, “We have put the final nail in the coffin of greedy insurance companies.”

Fee Bill Squeaks By

Employers, business groups, the Florida Legal Reform Institute, and the insurance community passed their bill reversing the Florida Supreme Court's Murray decision, once again eliminating hourly legal fees in workers' compensation litigation. But it was a tough job and the outcome appeared in doubt until the end. The Senate finally accepted the House proposal, which it had rejected a day earlier. If Crist signs the bill as expected, the National Council for Compensation Insurance will make a filing rolling back the 6.4 percent rate increase implemented April 1 to recover increased costs from the Florida Supreme Court decision.

Bill Prohibits “Crash Tax”

Florida became the latest state in the country to pass legislation prohibiting charges by cities and counties when fire departments and other emergency responders provide assistance following an auto accident. This initiative was led by Property Casualty Insurers of America (who dubbed it the “crash tax”) and supported by FIC members and our lobbyists. The bill (SB 2282E2) must now be signed by Gov. Crist.

More Significant, Less Punitive

For the first time in three or four years, the insurance community was not the target and the villain. Instead of good versus bad, it was, “we are in this together and it is not a good place to be.” If a major hurricane had struck last fall, the Cat Fund probably could not have timely delivered on all of its financial promises and Citizens, heavily reliant on the program, would have faced a crisis, as would have private insurers.

The situation is only a little better going into the 2009 hurricane season, although recent post-hurricane, tax-exempt bonding estimates have the Cat Fund close to being able to finance its basic program, at least. The ship heading toward the iceberg has been turned, as one House member put it. It took political courage to force the turn because it means higher insurance rates.

Sam Miller is the executive vice president of the Florida Insurance Council. He may be reached at 850-386-6668, ext. 223; www.flains.org.