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The Property Casualty Insurers Association of America urged Florida lawmakers meeting today in Tallahassee to allow the reforms made to hurricane insurance deductibles during the special legislative session to have time to work before implementing additional major changes.
William Stander, PCI regional manager testified before the Florida Joint Select Committee on Hurricane Insurance. The Joint Committee is charged with studying aspects of the residential insurance market in light of the approximately $20 billion in losses from the 2004 hurricanes. It was formed to provide the legislature with the opportunity to more fully study the complex issues involving hurricane insurance that could not adequately be addressed during the short four-day special legislative session in December.
Issues before the Joint Committee will include further study of the issue of multiple deductibles, the retention level of the Florida Hurricane Catastrophe Fund and options to reduce the size of Citizens Property Insurance Corporation. PCI will testify again Jan. 19 when the Joint Committee meets to consider issues related to CPIC.
Lawmakers cautioned
“While we would support changing the funding mechanism for the state’s multiple hurricane deductible reimbursement program from the Cat Fund to general revenues, we caution lawmakers to avoid making significant changes to the current law on hurricane deductibles,” Stander said. “Shifting the funding to general revenues will help hold the line on premium increases, which benefits consumers. Other than that, we need to give the legislation time to work. Insurers are complying with the law and we need to see the impact of the legislation before legislators overhaul the system again.”
As part of the review of hurricane deductibles, the Joint Committee is exploring whether the annual hurricane deductible should be optional and whether insurers should be required to offer a range of specific hurricane deductible amounts or percentages.
“These proposals are intended to offer consumers more choices. However, the best way for policymakers to offer consumer choice regarding deductibles, rates and insurance products is to enhance competition in the marketplace,” Stander said. “By encouraging competition, a broader range of companies will conduct business in the state and the marketplace will respond by providing consumers with the options they want to purchase. If the government steps in, consumer choice may become more limited and unintended negative consequences occur.
“The special session addressed the difficult predicament some homeowners experienced after being hit by multiple hurricanes,” he said. “Tinkering with the annual deductible could once again expose consumers to that situation and possibly necessitate the need to implement another reimbursement program.”
Reduce home deductibles?
One suggestion was to reduce a home’s deductible to 1 percent, instead of the customary 2 percent.
The ideas met with strong warnings from insurance company representatives that the money will have to come from somewhere. American Insurance Association lobbyist, Gerald Wester, said that lowering the policyholder’s share of repair costs to 1 percent could increase a company’s probable losses by almost 15 percent.
Using a hypothetical example, Wester explained that if a company faced $500 million in losses with a 2 percent deductible, that amount would jump by about $70 million with a 1 percent deductible. He said that such a company would either have to reduce its business or greatly increase premiums.
Rade Musulin, Florida Farm Bureau vice president, told the legislators that decreasing the deductible amount would mean either higher premiums or that his company would insure fewer customers.