Florida CEOs Urge ‘Cost Driver’ Reforms as Legislature Nears End

The Florida-Based Property Insurers CEO Group, representing 21 carriers, held a media conference today to discuss legislation to address the problems in the state’s property insurance market. The group downplayed the controversial issue of rate hikes while supporting reforms in the areas of what it sees as some of the cost drivers behind losses: sinkholes, public adjuster activities and replacement cost claim payments. The group also supports the managing general agency (MGA) structure and seeks to avoid changes that would hinder the ability to attract capital.

Bob Ritchie, president and CEO, American Integrity Insurance Co., Tampa, speaking on rates, said that the group is most concerned about being able to pass along reinsurance costs in a timely manner. As for other provisions, he said the CEOs support compromise in order to get a bill Gov. Charlie Crist can sign within the next few weeks before the Legislature adjourns.

The CEOs issued the following statement today:

Members of the Florida-Based Property Insurers CEOs Group today called on Florida lawmakers to pass legislation aimed at shoring up the state’s property insurance market or risk saddling taxpayers with billions of dollars of debt should a major storm strike the state. The group warned that time is running out in the current legislative session and that system-wide changes are desperately needed before hurricane season begins on June 1.

“Florida has been lucky to escape the past few hurricane seasons without a major catastrophic storm,” said Bob Ritchie, president and CEO, American Integrity Insurance Co., Tampa. “But good luck isn’t an effective strategy for protecting the people of Florida, their homes and businesses. Good legislation is necessary to allow the industry to continue building the private capital reserves we need to adequately cover Florida.”

Despite four years without a major hurricane, many of Florida’s private property insurers are not building the capital reserves experts say is necessary to protect the homes and businesses they cover following a major hurricane or series of storms. At the same time, large national insurers have reduced their exposure in Florida, leaving the state-run Citizens Property Insurance Corp. as the largest insurer with billions of dollars more in exposure than it has in reserves or reinsurance.

If a catastrophic storm strikes the state, it will be left to residents to pick up the difference in the form of assessments added to their insurance premiums.

Floridians are still paying for damages caused by a 2005 hurricane and will be until 2016. Since 2005, those assessments made on Florida’s taxpayers have amounted to almost $5 billion.

The Florida Legislature is addressing several proposed measures that will address the severe problems in the state’s insurance market. “We thank members in both the House and Senate for their leadership in coming up with solutions to address Florida’s insurance crisis,” said Ritchie.

CS/CS/SB 2044 and CS/CS/HB 447 impose a reasonable, three-year limit on hurricane claims; require that insurance payments are used to repair homes damaged by a hurricane or sinkhole; eliminate frivolous sinkhole insurance claims; address fraud, including improper activities by some public adjusters and mitigation discount verification inspectors; and strengthen laws to guarantee the solvency of insurance company and protect policyholders and provide the Office of Insurance Regulation authority to appropriately supervise managing general agencies (MGAs).

“Though there are some important differences, both the Florida House and Senate bills contain the elements we believe will correct some of the underlying structural problems that are crippling the market,” added Ritchie. “These reforms provide a much stronger foundation on which to rebuild the Florida market.”

The CEOs Group has worked with Florida OIR to craft balanced legislation. OIR is given tools it needs to address questionable behavior by a handful of insurers, while preserving the ability of insurers to attract badly-needed private capital to the Florida market and the country’s greatest hurricane risks.

The MGA structure has been essential in the organization of Florida insurers following Hurricane Andrew in 1992 and the eight hurricanes of 2004/2005.

“From a national and Florida’s perspective, MGAs are the best and sometimes only way to attract private capital into a hurricane-prone state,” said Tom Jerger, chairman and CEO, Modern USA Insurance. “While effective oversight is always appropriate, it is important to know that we have paid out some $30 billion in claims over the past 10 years, and are a major reason why the state was able to weather the devastating 2004-05 hurricane season.”

Financial reports released by the OIR show that 52 Florida domestic property insurers and the Florida subsidiaries of three national carriers had underwriting losses of three quarters of a billion dollars in 2009, even though there were no hurricanes. The 52 Florida companies alone suffered net losses of $275.4 million, following an underwriting gain of only $34 million in 2008, another year without hurricanes. This is an alarming development that lawmakers are addressing through the reforms being considered this week.

“Florida has substantially more hurricane exposure than any other state in the nation, which is why we need every property insurer and every dollar of insurance capital we can attract,” said Jay Newman, chairman, Sawgrass Mutual Insurance Co. and former Executive Director of Citizens Property Insurance. “This is why there needs to be a balancing act so that ill-conceived regulations don’t drive capital out the state at the very time when we need it most.”

The Florida-Based Property Insurers CEOs Group is comprised of CEOs representing 21 insurance companies across Florida. They protect more than one million homes and manufactured homes in Florida valued at more than $400 billion.

Source: Florida-Based Property Insurance CEOs Group
American Integrity Insurance Company
Robert Ritchie
President & CEO

ASI Group
John Auer
CEO

Bankers Insurance Company
David Meehan
President

Cypress Property & Casualty Insurance Company
Joseph Braunstein Jr.
Executive Vice President

Florida Family Insurance Company
Peter Corrigan
President

Homewise Insurance Company
Dale S. Hammond
President & Chief Executive Officer

Modern USA Insurance
Tom Jerger
President

Raymond Blacklidge
Senior Vice President & General Council

Safeway Property Insurance Company
Rob Wilson
Chief Operating Officer

Sawgrass Mutual Insurance Company
James W. Newman, Jr.
Chairman

Southern Fidelity Insurance Company
James Graganella
President & CEO

Sunshine State Insurance Company
John Rogan
President & CEO

United Property & Casualty Insurance
Don Cronin
President & CEO