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Fla. Insurance Council predicts hurricane coverage utmost concern

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Florida Insurance Council Executive Vice President Sam Miller predicts hurricane insurance will be the most significant property and casualty issue in 2006, just as it was in 2005, on the state level.

“Congress, at a higher level, is considering a national hurricane fund seriously for the first time in five years,” Miller said. “The eight hurricanes which struck Florida in 15 months; Hurricane Katrina, the largest natural disaster insurance event in world history and one of the largest events period; and the likelihood we face another decade of high hurricane activity; have policymakers and the insurance community struggling to ensure we can to finance our hurricane losses.”

Miller said everything is on the table.

“This includes additional rate increases from private property insurers and a major rate increase package being proposed by Citizens Property Insurance Corp., Florida’s insurer of last resort, of up to 80 percent for residents in some coastal areas.

Citizens’ rate should be adequate to reduce subsidization of southeast Florida property by other regions of Florida through the statewide assessments.

“At the same time,” Miller said, “policymakers are considering charging more for vacation homes and less for primary residences and providing relief to low income Floridians having trouble paying their insurance premiums, similar to the relief we provide today to help some people pay their electricity and telephone bills.

Miller said the “everything is on the table” list includes a plan by the Florida House Democratic Caucus to create a state fund to provide hurricane insurance and remove this peril from private insurance companies, although passage is probably unlikely.

Other proposals include dedicating a portion of sales tax revenues to the insurance system to supplement insurance premiums. The funds could go to Citizens to prevent a $1 billion, 11 percent statewide assessment next year and to the Florida Hurricane Catastrophe Fund to rebuild the Fund’s $7 billion cash reserves depleted by the 2004 and 2005 hurricane seasons.

Federal issues include a national catastrophe fund, a tax exemption to allow private insurance companies to accumulate hurricane reserves tax-free in years when there is no hurricane, assuming there will ever be a year without hurricanes again; allowing homeowners to set up tax-exempt savings accounts to cover their hurricane deductibles; and reassessing the National Flood Insurance Program.

The Task Force for Long-Term Solutions to Florida’s Hurricane Insurance Market, will provide a roadmap on many issues for the Florida Legislature in reports in February and again in April. Other groups are preparing recommendations, including a commission appointed by Governor Jeb Bush to investigate over-development and high hurricane losses in coastal areas; the House Democratic Caucus as noted above; and various insurance groups, in-cluding the Florida Association of Insurance Agents and the Florida Insurance Council.

Workers’ compensation insurance Miller said FIC, supported the National Council on Compensation Insurance recommendation of a 7.2 rate rollback for 2006 and our members have concerns about the higher, 13.5 percent rollback finally ordered by the Office of Insurance Regulation.

“Hopefully, it will not force carriers to reduce the new business they can take on or even cut back,” Miller said. “There are no signs of this yet and the larger rollback is good news for Florida employers.

He said it does seem clear that the 30 percent cumulative rollback from the 2003 reforms is all we can squeeze out of the system for the moment.

Dramatic turnaround “The 30 percent rate rollback is a dramatic turnaround and firm indication that the insurance community, state regulators, business community and legislature can work out reforms that truly reduce insurance rates,” he said. “It is unfortunate we have been unable to reach effective agreements like this in other lines. the PIP/no-fault sunset review of 2006 will be an opportunity.”

Miller said there is one major workers’ compensation issuing looming for 2006: The Florida Workers’ Compensation Joint Underwriting Association will levy an almost $5 million assessment on employer/comp policyholders unless steps are taken by the legislature and JUA to prevent it.

$4,777,000 JUA deficit projected Jim Watford, Office of Insurance Regulation chief actuary on workers’ compensation, reports that a $4,777,000 deficit in the JUA’s old Subplan D has been pretty much definitely projected and must be financed. Watford told the State Administration Appro-priations Committee this fall the JUA will be forced to issue a below-the-line assessment on all workers’ compensation policyholders, except individual self-insured firms, unless another proposal is developed to provide the money.

Miller said the legislature has options, including an additional transfer to the WCJUA from the Workers’ Compensation Administrative Trust Fund.

PIP/no-fault sunset Florida’s PIP/no-fault auto insurance system is scheduled to sunset (expire) Oct. 1, 2007 unless reenacted during the 2006 legislative session.

“Overall auto insurance rates, for the complete coverage you probably have, have leveled off or actually gone down the last few years,” Miller said. “Rates continue to increase for PIP, the insurance covering injuries to a driver and passengers in his or her car, required for all motorists by state law.”

Many low income Floridians carry only the auto insurance required by state law, so they are paying more than they should and more than motorists pay for comparable auto insurance in other states.

There is no support among Florida Insurance Council members for outright reenactment of the no-fault/PIP statute. FIC members have reached split decisions on repeal of no-fault/PIP versus reform.

“There is unanimity, however, in the belief that the current system is in disarray as a result of statutory and judicial changes during the past three decades,” Miller explained. “Florida Insurance Council members believe the current No-fault/PIP system is broken and Florida policymakers should work to create a more efficient auto reparation system. The current auto reparations system results in a lack of certainty and unnecessary frictional costs to the detriment of insurance consumers.”

Some auto insurers favor repeal of no-fault with Florida joining Colorado and other states in reverting to pure tort. Others support reform, a long list of various changes. The Senate Banking & Insurance Committee, in an excellent report released in November, proposed reenactment of PIP, but with a medical fee schedule on PIP payments and attorney fee reform. The trial lawyers, doctors, chiropractors and groups involved in the PIP/no fault system want no changes.

It is possible the legislature will pass a bill putting off the actual decisions on PIP/no fault until the 2007 session because members will be so occupied with property insurance.

Miller said a compromise could be reached between the trial lawyer-doctor/chiropractor coalition and the insurance community, but maybe not.

2005 successes Miller said the hurricane insurance package adopted in the final hours of the 2005 session (CS/SB 1486) is the most significant and controversial property package in years. The Council, working with insurance community allies and key legislators, helped fashion it into a good product overall all, good for what is contained and for what it did not contain.

SB 1486 includes legislative intent that the Mierzwa decision incorrectly interpreted valued policy law, a major rewrite of sinkhole insurance laws, reduction of the Cat Fund retention and a multi-event retention solution. Reversing Mierzwa was at the top of the FIC Property Committee’s priority list. Some of the most onerous proposals considered throughout the session were defeated and did not stay in the final bill.

These included repeal of arbitration, the requirement that all claims be settled within 30 days, with some exceptions, a mandatory offer of a 1 percent hurricane deductible and proposals that would have artificially capped rates for Citizens Property Insurance Corp.

Miller says the package lowered the Cat Fund retention and addressed the multi-event season. Effective with the 2005 hurricane season, the retention was lowered from $5 billion to $4.5 billion for the two largest storms in a hurricane season and one-third of that for other storms.

The Council believes another key legislative achievement was its defeat of a bill authorizing investor owned life insurance products. If the bill had passed, the heart of life insurance would have been undermined as life insurance is known and practiced in Florida by companies, agents and consumers.

The bill would have allowed a university that receives state funds to establish a trust to be named as the irrevocable beneficiary of a life insurance policy or annuity contract. FIC and other life insurance industry groups, noted that President Bush was proposing a 25 percent tax on IOLI products, opening the door to a federal tax on life insurance. They also noted that the legislation provides no safeguards for the university, so the entity issuing the product could make excess profits at the benefit of the university beneficiary.

“Our greatest success outside the legislative arena was surviving another four hurricanes, eight in two years, along with four tropical storms, $30 billion and 2.4 million claims over the two seasons,” Miller explained. “We did a good job in handling our claims and satisfying policyholders. No other state in the country could face eight hurricanes, five of them major and still have a property insurance system around for the next year.”


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