Fla. Insurer Of Last Resort Study Panel Meets

A Florida lawmaker who voted to create the task force examining Citizens, the state’s home insurer of last resort, urged participants at the group’s first meeting to focus on business rather than politics.

State Rep. Alan Hays, a Republican whose district includes parts of Lake, Seminole and Volusia counties, said the state legislature “intended to do a good thing” in enacting a variety of insurance measures during a special session, but that legislation had brought “some terrible unintended consequences.”

The task force’s main goal, he said should be to help undo those consequences.

The legislation, enacted by the legislation in a special session last year to help ease the burden on taxpayers, significantly increased Citizens’ exposure to catastrophic risk.

Rep. Hays reinforced the point by referencing the damage wrought by Hurricane Ike in Texas. Under the bill, in the event of a shortfall Citizens would have the authority to add assessments to its own policies and then ultimately spread assessment to any policy in the state except for workers’ compensation or medical liability coverage.

“Can you imagine if Ike had hit Florida,” he said, adding that the panel could imagine such a strike anywhere along the state’s coast. “If we had incurred that kind of damage, we’d be bankrupt, effectively.”

Rep. Hays explained his own experience with insurance prior to joining the state House’s Insurance Committee. A dentist by trade, he said his experience was limited to “writing the check” for his malpractice coverage, and that even his personal coverage was handled by his wife. The point, he said, was that the knowledge present in the task force was needed by lawmakers.

“Leave the politics to us,” he said, “we want your business expertise.”

Given the state’s exposure, and the likelihood that a major storm would trigger possible several assessments on policies, Rep. Hays said that it will be important for lawmakers to ensure that Floridians are given the facts.

“When people understand the problem, they will be better able to understand and accept the solution,” he said.

In terms of citizens specific situation, Rep. Hays noted that the company’s surplus of “between three and four billion,” likely wouldn’t cover the losses of any significant event, and he added that current financial conditions make it difficult for the state to even sell enough bonds to cover additional losses.

Already, he said, Florida has paid $224 million to Berkshire Hathaway just for the guarantee that the company would buy $4 billion worth of bonds should the state’s losses exceed $25 billion.

While asking the panel to avoid politics, Rep. Hays did offer some suggestions of his own.

“We need to raise the premiums of Citizens,” Rep. Hays said. Current rates have been frozen at 2005 levels, he noted and both state regulators and lawmakers have sought to avoid any rate hikes. “That is absurd,” he said. “It is fiscally irresponsible and it is wrong.”

While praising the overall work of the state Office of Insurance Regulation, Rep. Hays said the OIR “artificially suppressed the premiums,” and asked that the state be opened up to more business. “Let the free market work,” he asked. “Let the companies in and let the companies compete.”

Among the means to provide rate relief for property insurance policyholders in the bill is a provision to allow primary insurers to purchase additional reinsurance from the state catastrophe fund at cheaper prices than they would see from a private reinsurer. Additionally, the legislation eliminates restrictions on the state’s insurer of last resort, Citizens Property Insurance Company, which forbade it from directly competing for business with primary insurers.

However, because lawmakers sought to ensure that the legislation would not be accompanied by a tax increase, no upfront funding was made available for the increased exposure being faced by the Cat Fund or, potentially, Citizens. Instead, lawmakers expanded the ability of Citizens to make assessments after the fact, allowing the company to make assessments against property and casualty and auto lines, excepting workers compensation and accident and health coverage.