Independent Agents Urge Repair of Florida's Insurance Market

April 11, 2011

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TALLAHASSEE, FL - With the start of hurricane season less than two months away, Florida's home insurance market is still on perilous ground. Along with other groups, including both business and insurance interests, the Florida Association of Insurance Agents (FAIA) is urging reforms to ensure private carriers can continue to pay claims and policyholders can be relieved of the burden of paying state-mandated assessments on auto and other policies.

In the last two years, five Florida-based property insurance carriers have either become insolvent or were shut down despite the fact that regulators have approved over 150 rate increases-- many for double-digits. In summary, Floridians endured more insolvencies and more rate increases after five years without a single hurricane...more than they did in the two-year aftermath of the 2004-05 hurricane seasons in which eight storms ravaged the state.

"The status quo is not acceptable," said Jeff Grady, president and CEO, Florida Association of Insurance Agents. "Instead of building reserves during five quiet storm seasons, insurers are losing ground to fraudulent sinkhole claims and subsidized competition with state-run Citizens Property Insurance. Consumers are in need of reforms that will reverse these trends and provide better choices by placing our state's property insurance market on firmer footing."

At the halfway point of the 2011 Legislative session, there are several efforts ongoing to address deterioration in the private insurance market. Two proposals offer a favorable impact and stand a fair chance of passage. These separate but complementary solutions are HB 803/SB 408 and HB 1243/SB 1714. The first, referred to as the general property bill, is an improved version of last year's SB 2044, which passed overwhelmingly but was vetoed by then-Governor Charlie Crist. The latter, known as the "Citizens" bill will return Florida's subsidized, state-run company (Citizens Property Insurance Corporation) to its former status as a "last-resort insurer."

HB 803/SB 408 (Property and Casualty Insurance Bill)

• Makes changes necessary to reduce rampant fraud in the filing of sinkhole claims.

• Increases regulation of Public Adjusters and requires claims payments to be used to repair damaged property.

• Makes numerous regulatory changes designed to attract new insurance capital to Florida.

"I am compelled to make sure everyone in Florida knows the whole truth about the fact that Citizens is underfunded by at least $10.5 billion," said Senator Alan Hays R-Umatilla, SB 1714 bill sponsor. "If the big hurricane hits, many of their policy holders are not going to get money for repairs and all Floridians will be taxed to make up for that $10 Billion shortfall."

HB 1243/SB 1714 (Citizens' Insurance De-population)

• Avoids the necessity of a 55 percent rate increase for actuarial soundness with a modified glide path approach.

• Requires an upfront acknowledgement form so Citizens policyholders fully understand their assessment potential and are responsible for paying it should a deficit occur.

• Reduces luxury coverage for items such as pool cages, gun collections, furs, silverware and the like.

• Steps down the limit of coverage for high-value coastal property.

• Contains numerous other less substantive changes designed to insure coverage is provided only to those who truly deserve Citizens subsidized rate.

Some 50 Florida insurers and Florida divisions of four large national carriers lost $750 million in 2009 - which was a year without any hurricanes. Taken together, the tandem bills will attract new insurance capital to Florida while also improving the financial condition of existing domestic property insurers.

Independent agents maintain that returning Citizens to its original last-resort role is paramount. "What good is reforming private insurance if private insurers can't write any new business?" asks Kyle Ulrich, Sr. Vice President of Public Affairs, FAIA. After the passage of HB-1A during a special session in January 2007, Citizens' rates were rolled back to 2005 levels and frozen - putting private insurers at tremendous risk. Their disadvantage spawned significant growth in the state-run insurer and contributed to an increased likelihood of assessments for the vast majority of Floridians not insured in Citizens.

This is why Florida-based James Madison Institute (JMI) says the shrinking of Citizens is an essential step toward restoring Florida's property insurance marketplace. "The previous reforms," according to the JMI white paper, "essentially transformed Citizens from a residual marketplace and made it an active competitor in the property insurance marketplace, a state-owned behemoth with an unfair advantage. And it exploits that advantage enormously; indeed, a commission appointed to review Citizens found that the agency charges rates that would be illegal if a private company charged them."

FAIA is the oldest and largest insurance organization of any type in Florida. It represents 2,000 independent property and casualty agency locations, employing close to 18,000 licensees. Independent agents are not employees of companies but are independent contractors representing all but a handful of Florida's admitted insurers and are free to sell policies for any number of companies. For more information, visit www.faia.com.