Fla. CFO Gallagher Suggests ‘Multi-Faceted Package’ to Solve Claims Problems, Study Reinsurance Rates

November 8, 2005

Legislation in Congress to pass U.S. Rep. Mark Foley’s proposal to allow the accumulation of tax-deferred catastrophic reserves by insurers, and a study on how to add programs to the Florida Hurricane Catastrophe Fund to ease rate increases in the reinsurance market, were discussed by Tom Gallagher during a special briefing in Tallahassee on Monday attended by Insurance Journal and the press.

The CFO voiced his support for federal solutions being advocated by Governor Jeb Bush and key congressional leaders. Gallagher presented a package of proposals he suggested will strengthen Florida’s property insurance market and better protect homeowners and condominium owners from financial devastation after a hurricane strikes.

Gallagher said a “multi-faceted package” will address insurance issues and advocated both federal and state solutions.

The CFO targeted three challenges to Florida’s insurance market: 1) Reinsurance is becoming less available and more expensive; 2) Florida homeowners are currently exposed to too much liability; and 3) Florida families need assistance in dealing with the costs of storm recovery.

To solve the reinsurance challenge, Gallagher suggested creating a federal Catastrophe Fund, sponsored by Rep. Brown-Waite. He also supports a proposal, sponsored by Rep. Foley, to allow tax-deferred catastrophe reserves for insurers. At the same time, Gallagher suggested a study to determine how to add programs to the Florida Hurricane Catastrophe Fund to ease rate increases in the reinsurance market.

To ease homeowners exposure to too much liability, Gallagher recommended standardizing Florida’s building codes statewide. He also suggested earmarking sales taxes derived from hurricane reconstruction to offset losses from future assessments and capping Citizens’ residential policies at $1 million.

To assist Floridians and their families unable to deal with costs of storm recovery, Gallagher recommended the institution of mediation for 2004 condominium association claims; encouraging condominium associations to establish catastrophic reserves to prepare for storms; and the creation of federal tax-free catastrophic savings accounts.

Federal-level recommendations

On a federal level, Gallagher urged Congress to establish a national catastrophe fund, for which he lobbied following Hurricane Andrew in 1992, and to create individual Catastrophic Savings Accounts to allow homeowners to save tax-free dollars to pay deductible and storm recovery costs.

“CSA’s would give Floridians the opportunity to save money tax-free to pay insurance deductibles and uninsured losses, as well as to strengthen their homes against hurricanes,” Gallagher explained. “Money would grow over time to better protect Floridians from the financial threat of hurricanes.”

State-level recommendations

On a state level, Gallagher asked the Legislature to earmark the sales tax revenue collected from hurricane recovery to held offset assessments against homeowners. He also called for standardizing Florida’s building code statewide, and capping coverage of homes at $1 million or less in Citizens Property Insurance Corp., the state’s insurer of last resort.

“Floridians pay millions in sales tax to recover from catastrophes, they should not be taxed twice,” Gallagher said.

Mediation program expansion

The CFO is initiating the expansion of his mediation program to include condominium communities. He cited statistics indicating that the mediation program, established following multiple hurricanes in 2004, has been used by more than 11,000 homeowners in disputes with their insurance companies, with a 92 percent settlement rate.

Since last year, the Department of Financial Services has assisted nearly 600,000 Floridians with questions and requests for help after the hurricanes. DFS has advocated on behalf of 61,000 consumers to mediate in discussions between the policyholders and their insurance companies. Gallagher said 88 percent of those complaints were satisfactorily resolved in favor of consumers, with a total of 54,000 complaints settled.

Additionally, DFS, working with Gov. Bush and the Legislature, reimbursed $43 million to hurricane victims with multiple hurricane deductibles. Gallagher said he also led the successful fight to eliminate multiple storm deductibles during one hurricane season.

Referring to a map showing the paths of recent hurricanes across Florida, Gallagher said eight catastrophic storms in 15 months have caused more than $32 billion in insured damages.

“Florida homeowners will bear the brunt of this burden if we don’t act now to implement solutions to prevent an insurance market meltdown,” Gallagher said. “It will take a comprehensive approach to tackle the challenges that we face as a state.”

Gallagher cited the success of DFS-sponsored town hall meetings held across the state during the past spring, during which thousands of Floridians were provided with direct on-site help to resolve their claims.

“Small homeowners throughout the state should not have to bear the burden of billions of dollars of hurricane damages,” Gallagher concluded. “If we act now, we can make sure that property insurance remains available and affordable.”

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