Fla. Weighs Special Session to Take Up Property Insurance Ideas

Insurers would be able to buy more reinsurance from the state’s hurricane catastrophe fund and homeowners would be able to buy lower cost policies offering less than complete coverage if recommendations from a special panel formed to find solutions to Florida’s property insurance crisis are adopted.

The Property and Casualty Reform Committee formed by Florida Gov. Jeb Bush in June has come up with recommendations for lessening the immediate insurance crisis in the state and Bush is weighing whether he should call a special session of the legislature in early December to consider them. He has said he would do so if there appears to be agreement on the proposals.

The proposals include allowing insurers to offer low-cost policies with reduced coverage such as for only partial value of a home or ones that exclude wind coverage.

The recommendations include 11 meant to foster loss mitigation and premium discounts. Policyholders insured by the residual market insurer Citizens Property Insurance Corp. might be required to upgrade their homes to meet the statewide building code over some period of time or risk higher hurricane deductibles applicable to their policies.

The committee recommends that catastrophe modeling companies used by insurers in setting rates be required to reflect the number and strength of new structures that have been built since the state updated its residential building code.

Under another proposal by the committee, insurers would be allowed to buy hurricane reinsurance below the current retention level, which is $5.3 billion for the industry combined. Each insurer’s retention level, or the point after which it can seek reimbursement from the fund, is based on its percentage of total cat fund premiums; thus an insurer paying 10 percent of the total cat fund premiums has a retention of $530 million (10 percent of $5.3 billion). The expansion of coverage would be temporary.

Another proposal urges that consumers be given more information as to types of specific mitigation steps they should take and the resulting potential credits. The report also calls for state funded research concerning mitigation of commercial structures and consideration of whether the state should strengthen its building code for commercial structures.

Regarding Citizens Property Insurance Corp., the report calls for the Office of Insurance Regulation to set rates quarterly, based on the highest rate approved for the voluntary market, and to earmark a portion of future mitigation funding for Citizens policyholders.

The report urges the federal government to create a national catastrophe fund to deal with high level catastrophic events.

In a recent interview with Insurance Journal, newly-elected Chief Financial Officer Alex Sink said she is anticipating the special legislative session which is tentatively scheduled for the first week in December. She said she believes Gov. Bush will go ahead with the session in Tallahassee to discuss property and casualty insurance reform.

The committee held seven public forums around the state between July and the end of October, meetings that produced some 150 ideas and concepts from the public. From the 150, the committee has boiled the list down.

The primary question posed by Florida residents and addressed by the committee has been, “Why are insurance rates rising so quickly?”
The committee’s report cites some of the following reasons:

it costs more to insure a home due partially to the increase in property values – the same property value increases that have given people more equity in their homes also leads to higher insurance costs;

the costs of building materials and labor have risen dramatically and the cost of rebuilding a home has doubled in the past couple years;

the cost of reinsurance has increased;

and insurance companies have depleted their reserve funds after the 2004 and 2005 hurricane seasons, and by law are required to maintain a certain level.