A proposed “solution” to Florida’s hurricane insurance problems, based on impressive research and an independent actuarial analysis showing hundreds of millions of dollars in savings has been announced by the Florida Association of Insurance Agents. The proposal calls for the elimination of Citizens Property Insurance Company’s High Risk Account in favor of a system that pays insurers to do the work.
FAIA said the HRA is responsible for the 2004 deficit for the state run insurer of last resort of $515 million and the 2005 deficit of $977 million, both of which resulted in Florida policyholders paying surcharges on their homeowners policies of 6.8 percent and 11 percent, respectively.
“The savings are immediate and pronounced and will not only create better consumer service but lead to increased competition in the long run,” Scott Johnson, FAIA executive vice president said in his presentation before the legislatively created Task Force on Long-Term Solutions.
Under the plan Citizens HRA administrative, policyholder and claims handling functions would be transferred to insurance carriers who would keep a portion of the Citizens HRA premium as a fee for services. Unlike the current arrangement, companies could retain as much of the wind exposure and related premium as they want and assume the responsibility for paying claims from those retained funds. Premiums for wind risks a company does not retain would be forwarded to the new WCF. After a storm, the company would access the WCF for reimbursement of losses that exceeded the premium it retained to pay wind losses.
Like a growing number of lawmakers and Chief Financial Officer Tom Gallagher, FAIA also proposes earmarking portions of storm related sales tax windfalls to rapidly grow surplus funds for future years. Johnson said doing so significantly reduces or eliminates the chances of assessments like the ones policyholders are complaining about right now.
One of the key benefits of the FAIA plan is better policyholder service. If implemented, the WCF would mean one company, one check, one policy, one agent and one adjuster for consumers. According to Johnson, that means policyholders can shop again for the company and agent they want to cover all of their homeowner insurance needs, including wind.
The WCF also would:
* Allow over $100 million additional dollars to go to surplus annually due to the elimination of HRA administrative costs.
* Encourage competition for high risk coastal areas where some companies are still willing to write “some” wind coverage, but are prohibited from doing so under the current arrangement.
* Eliminate future assessments by allowing storm related sales tax windfalls to rapidly grow surplus for future years.
* Eliminate the administrative, legal and actuarial costs associated with paying bonuses to carriers to take policies out of Citizens, saving an estimated $71 million for the HRA alone.
The FAIA also made a number of recommendations for reducing the state’s wind risk exposure including:
* Subsidizing rates of Florida residents insured in Citizens by charging a disproportionately higher premium for the second homes of non-residents.
* Requiring financially capable Citizens policyholders to retrofit their homes within a specified time frame.
* If deficits occur, stop assessing Floridians first, rather assess non-resident Citizen policyholders up to a specified premium percentage (i.e., 6.8 percent of 11 percent) before going to Florida residents. Then lower the assessments on residents by including all policyholders in the formula not just those who are not insured by Citizens.
“We have no delusions about who might oppose this approach,” Johnson said. “However, we are encouraged by the strong support we are hearing from some in the public sector and Florida’s major trade associations.”
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