Insurance mess brings conflict to capital

Article Courtesy of The Orlando Sentinel

By John Kennedy and Jason Garcia
Published  January 17, 2007

TALLAHASSEE -- Florida lawmakers opened a special session Tuesday to tackle the state's property-insurance crisis, but proposed solutions quickly opened a deep political divide between new Gov. Charlie Crist and fellow Republicans in the House.

Crist, backed by Senate Republican leaders, is pushing a plan to dramatically cut homeowners' premium costs by making state taxpayers pick up the costs of rebuilding if a mega-hurricane hits.

But House Speaker Marco Rubio, R-Miami, signaled he is unwilling to consider the plan during the weeklong session, warning that it involves "incalculable risk" and creates a "scenario that would require massive tax increases."

"It's an idea that threatens to transfer a significant  amount of risk onto the

 On Tuesday during a special legislative session, dozens gather on the steps of the Old Capitol to protest the soaring cost of homeowners insurance.

shoulders of taxpayers, and anything that does that should be considered over weeks and months, not hours and days," Rubio said in an interview.

At its heart, the clash is not only a struggle over dollars but also philosophy, with Crist and Senate leaders favoring what critics call a big-government approach to easing insurance costs.

"I don't know if it's un-Republican," said Senate President Ken Pruitt, R-Port St. Lucie, who supports the plan. "If you look back in time and history, it's government's role to stabilize. And that's what you're seeing here."

While shaded by politics, this week's battle in Tallahassee also has tremendous pocketbook implications for Florida homeowners.

Ernest Bach of Largo was among three dozen or so Floridians who traveled to the Capitol to plead with lawmakers for help after watching the cost of insurance on his condo climb more than 500 percent during the past three years.

"You need to save Florida's citizens. We're counting on you, please," Bach told members of the Senate's Banking and Insurance Committee.

Senate Democratic Leader Steve Geller of Hallandale Beach also warned that tangible results were needed.

"Remember those old black and white movies --Frankenstein -- where the villagers with the pitchforks and the torches were marching on the castle?" Geller said. "If we don't pass something to reduce insurance rates this week, they're going to march on Tallahassee. And you know something? We would deserve it."

Few good options

Two weeks after being sworn in as governor, Crist, a moderate Republican, clearly is intent on making good on his campaign pledge to cut insurance costs.

But he also faces few good options.

In perhaps his most controversial move, Crist has said he would support the Senate approach of capping insurance-industry hurricane costs at about $26 billion, making state taxpayers stand by to pick up any higher amounts.

Hurricane Katrina recovery has cost a total of about $40.6 billion so far. Under the Senate plan, a similar Florida catastrophe could easily empty the state's $6 billion reserve fund and possibly force a temporary statewide sales-tax increase, lawmakers conceded.

But in exchange for taxpayers assuming such risk, State Farm Insurance and other major underwriters have said homeowners' windstorm-insurance costs could be cut by one-third -- with lawmakers wanting such reductions carried out within at least six months.

Another dramatic provision of the Senate plan, also endorsed by Crist, would allow Citizens Property Insurance Corp. to begin competing with private insurers for customers.

Citizens, established as the insurer of last resort for Floridians denied private coverage, now has 1.3 million policies, making it the state's largest insurer.

Crist said that making Citizens more competitive makes economic sense and could yield premium reductions for all of those currently in the high-cost pool.

But Crist also ducked when asked whether expanding state government's role fit with the conservative principles he espoused during last fall's campaign.

"It fits with Florida principles," Crist said Monday night after a ceremony commemorating the Rev. Martin Luther King Jr. at the Governor's Mansion. "We've got this Citizens insurance company that already has 1.3 million customers. This is where we are.
"Let's have this be a company that can compete," he added. "Let it be a company that gets a fair shake . . . and gets the opportunity to go toe-to-toe with the private sector to make the people get the very lowest rates possible."

Shopping priorities

Crist's office also began shopping around what he considers his legislative priorities this week, which include a prohibition on national insurers setting up Florida subsidiaries to reduce risk and forcing them to continue writing homeowners' policies if they also offer other insurance lines in the state.

Another Crist provision would prohibit insurers from canceling policies in most cases, an idea that even Senate leaders balked at.

But Rubio, who already has positioned himself as a potential Crist political rival by hiring many of former Gov. Jeb Bush's staff, turned the coldest shoulder to the governor's plan.

Rep. David Rivera, R-Miami, one of Rubio's closest allies, called the approach favored by Crist and the Senate "reckless."

"I have a lot of concerns that the plan would bankrupt the state and provide a bailout to the insurance industry, to put it really simply," Rivera said.

Instead, the House would offer insurance companies more state-subsidized reinsurance -- which these firms rely on for help after catastrophic storms. Insurers say rising reinsurance costs on the private market are one of the main reasons they have increased the rates charged homeowners.

Under current law, insurers have to pay out a cumulative amount of more than $5 billion worth of claims before they can tap into the state's reinsurance fund. The state also caps the amount of damage it will cover at $15 billion.

The House wants to lower the initial threshold to $2 billion and raise the maximum payout to $20 billion for two years. The Senate also wants to expand the use of the state's reinsurance fund, though not to the House level.

Both plans also include measures to roll back and temporarily freeze rates for Citizens customers.

But the pitch expanding Citizens' role to make it a competitive Florida carrier appears dead-on-arrival in the House.

"The comfort level of many members is not there on expanding the role of Citizens," Rubio said.

"And certainly I think there is a sense in the House that there are some structural changes that have to happen to Citizens as to how that company operates before it's allowed to continue to go out and write more policies."