FAIA Suggests: Eliminate HRA to Solve Wind Risk Problem

A “solution” to Florida’s hurricane insurance problems, based on 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 would eliminate Citizens Property Insurance Company’s High Risk Account with a system that pays insurers to do the work.

FAIA said the HRA is responsible for the insurer of last resort’s recent deficits.

Scott Johnson, FAIA exectuive vice president told Florida’s Task Force on Long-Term Solutions, “the savings are immediate and pronounced and will create better consumer service and increased competition.”

Under FAIA’s plan, Citizens HRA administrative, policyholder and claims handling functions would transfer to carriers, who would keep a portion of the premium as a fee for services. Companies could retain part of the wind exposure and related premium and assume responsibility for paying claims from those funds. Wind risk premiums 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.

Portions of storm-related sales tax windfalls would be allocated to rapidly grow surplus funds for the future. Johnson said this would significantly reduce or eliminate assessments.

Better policyholder service would result from the transition to one company, one check, one policy, one agent and one adjuster. 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 more than $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 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.

FAIA 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 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.