House and Senate far apart on Citizens' role, state risk

Article Courtesy of The Palm Beach Post

By Dara Kam, Randy Diamond
Published  January 17, 2007

TALLAHASSEE The opening day of a weeklong special legislative session with the goal of lowering property insurance rates found lawmakers in the House and Senate deeply divided about the role government should play in bailing out insurers and homeowners.

The two key issues splitting the two Republican-controlled chambers: an expansion of the state-run Citizens Property Insurance Corp. and the creation of a super-catastrophe fund. The concepts are included in the Senate plan, and House leaders are balking at both.

One part of the Senate plan, backed by Republican Gov. Charlie Crist, would put taxpayers on the hook for hurricane damages of more than $22 billion statewide by creating a super-catastrophe fund. Another part would grossly expand Citizens from its current status of only writing windstorm policies in high-risk areas of the state to one where it could write less-risky types of policies, such as fire insurance, for its customers in high-risk areas.

But House Speaker Marco Rubio said Tuesday that the super fund - first proposed by Senate Democratic Leader Steve Geller last week - is a deal breaker for the House because he believes it could jeopardize the state's financial health in the event of a major storm like Hurricane Katrina.

Rubio said the super fund and Citizens expansion could risk the passage of any comprehensive legislation by Monday, when the special session is scheduled to end.

"There's a package of ideas that have been considered now for weeks. Everyone understands what they do. They understand how they work. There's an extraordinary amount of consensus on over 90 percent of the bills in the House and Senate. That should be the focus of the special session. Anything outside of that injects an air of uncertainty that endangers the entire package," said Rubio, R-Coral Gables.

But Senate Majority Leader Dan Webster of Winter Garden said the super fund would save homeowners money by lowering insurance premiums by an overall 20 percent statewide.

The savings could even be greater in Palm Beach County and the Treasure Coast, where windstorm coverage is a greater percentage of insurance premiums than inland.

Senate negotiators will try to persuade the House to buy into their proposal.

"We have some explaining to do. ... We're going to do everything we can to make sure that they (House members) understand what we're trying to propose," Webster said.

The State Board of Administration predicted that a once-in-250-years storm, one worse than Katrina, could cost Florida taxpayers about $60 billion under the Senate plan. The board was asked by Sen. Bill Posey, chairman of the Senate Banking and Insurance Committee, to estimate the cost of the plan.

Under the plan, the insurance industry could start buying reinsurance from the state-financed Florida Hurricane Catastrophe Fund once the industry has $2 billion in aggregate claims in the state. Insurers could purchase up to $20 billion in the deeply discounted reinsurance from the catastrophe fund.

Once the insurers' claims hit $22 billion, the state would assume all risk up to $71 billion under the Senate plan. Insurers would not be required to pay any premiums for that coverage as they had for the $20 billion worth of reinsurance, but would be required to pay 10 percent of the losses.

The $69 billion that the insurance industry would receive from the catastrophe fund and super fund, less the premiums and 10 percent that insurers would have to pay, would leave taxpayers holding the bag for $60 billion, the board says.

The Senate plan promises to spend up to 10 percent of the state's $74 billion budget, or $7 billion, to cover the super-fund. The difference would be made up by a three-year, one-cent sales tax increase.

Posey said it's worth the risk because the chances of such a major storm occurring are rare, and the insurance companies would be required to reduce insurance premiums in exchange for the state assuming liability for the storms.

"If the charge is to lower rates, we must do this," said Posey, R-Rockledge.

Democratic Sen. Steve Geller, who authored the hurricane catastrophe fund plan, said losses during the four-hurricane season of 2004 did not exceed $21 billion.

But Rubio said that idea can wait until the regular session convenes in March.

"It's an idea that threatens to transfer significant amount of risk onto the shoulders of taxpayers. Anything that does that should be considered over weeks and months, not hours and days," he said.

Supporters in the Senate said the criticism misses the mark because the private insurance industry today has neither the reserves nor the reinsurance coverage to cope with a Katrina-like storm. Some insurers have a few billion dollars worth of coverage beyond the state's catastrophe fund, Webster said, but nowhere enough to pay losses that could total $60 billion.

Without the Senate plan, the resulting deficit of tens of billions of dollars in losses probably would be picked up anyway by the state and - if Florida is lucky - federal taxpayers, Webster said.

"Are we on the hook already? Yes," he said. "For how much? That's a number that's as speculated on as the losses from a 250-year storm."

According to an estimate from the Office of Insurance Regulation, the total capacity to pay losses in Florida currently is about $45 billion to $50 billion, including the $16 billion from the catastrophe fund and the ability of Citizens to levy assessments.

The House plan also would lower the level for insurance companies to purchase low-cost reinsurance from the state-backed catastrophe fund - from the current $6 billion to $2 billion - and it would raise the maximum amount insurers could purchase from $16 billion to $20 billion, but no more.

The other sticking point is whether Citizens, now the state's largest windstorm insurance provider even though it is the insurer of last resort, should be allowed to sell multi-risk policies, as the Senate proposes.

The House's goal is to reduce the number of policies Citizens writes but, like the Senate plan, it would do away with the requirement that Citizens' rates be the highest in the state.

The Senate would go further by letting Citizens compete in high-risk coastal areas for multi-peril policies.

Webster said of Citizens: "We own them. They're a company that needs to become a viable company. ... You make Citizens sound so it's marketable. Then it's not necessarily to depopulate it."

Again, Rubio disagreed. The Citizens fix "can wait," he said.