The Florida House of Representatives has passed legislation designed to attract new insurers to the state and assume policies from the state-run insurer of last resort, Citizens Property Insurance Corp.
Approved Thursday on a 109-6 vote, the legislation (HB 5057) provides for $250 million to be appropriated to the state’s Insurance Capital Build-Up Incentive Program.
The ICBIP was established to lure carriers to the residential property market by offering loans of up to $25 million to new or existing residential property insurers.
Supporting the financial backing are surplus note agreements repayable over 20 years with interest set at the ten-year Treasury rate on unpaid principal. In addition, the legislation would extend the deadline for companies to apply for ICBIP loans until September.
The ICBIP was initially established in 2006, but at that time was funded directly by Florida taxpayers. To obtain the loans, companies are also required to contribute to their surplus an amount at least equal to the size of the loan they receive.
Companies are also required to put up matching amounts of money to receive the loans.
The bill has been sent to the state Senate, where on Tuesday the General Government Appropriations Committee approved a related measure. Senate legislation (SB 2860) would continue a freeze on Citizens’ rates until 2009, beef up penalties for insurers who violate state laws, broaden the state's power to block rate hikes, and hold the industry accountable to state antitrust and unfair trade practices laws.
Should the House bill pass, insurers wishing to take advantage of the ICBIP would have to agree to write coverage for policies taken out of Citizens equaling 10 percent of its net or gross written premium, not including renewal premiums.
Eli Lehrer, a senior fellow at the Competitive Enterprise Institute, harshly criticized the legislation, arguing that if enacted, it would only compound the potential problems facing the state.
“I thought things could not get worse in Florida. I was wrong,” he said. “This bill performs the feat of destabilizing Citizens and the private market at the same time.”
Ultimately, according to Mr. Lehrer, the bill would encourage the creation of a “bevy of thinly capitalized domestics” that would take advantage of the system to reap large profits and then turn their liabilities over to the state’s insurance guaranty fund “as soon as a big storm hits Florida.”