Florida lawmakers rethinking backup insurance coverage

TALLAHASSEE, Fla. – Feb. 11, 2008 – Florida lawmakers may revisit property insurance changes instigated last year. A $12 billion increase in state-backed reinsurance was supposed to drop homeowners’ premiums, but it didn’t work that way. And some legislators now think the state’s increased financial risk faced overshadows the minimal savings.

Florida lawmakers could issue new reforms to reduce backup property insurance coverage for private insurers, rather than foster additional rate relief. The state reinsurance backstop increased from $16 billion to $28 billion under reforms passed in 2007, which lawmakers expected to generate a 24 percent rate cut for homeowners’ policies in the state. However, the average rate reduction resulting from the increase in reinsurance coverage has been just 15 percent, and many more companies continue to reduce their exposure in the state.

Critics worry that the state’s current obligations could require the sale of 30-year surcharges, between $11,000 and $18,000, on homeowners’ and auto insurance policies across the state following a megastorm. The state hoped originally to sell catastrophe bonds to investors and banks to shore up the reinsurance fund and shield Floridians from high losses after a storm, but quickly discovered that interest was less than stellar.

“There’s not anyone in the financial world who thinks Florida will be able to sell those bonds,” says American Insurance Association lobbyist Gerald Wester.

Surcharges also would only be enough to cover losses from one mega-catastrophe, so if another were to strike, the state fund would become insolvent, along with the state treasury.

About 46 of the 121 insurers in the state, on the other hand, sought rate hikes this year, despite the absence of hurricane losses in the state since 2005. Florida Senate Banking and Insurance Chairman Bill Posey (R-Rockledge) says the 2007 insurance reforms have lowered rates for homeowners, but should a hurricane strike this summer, the success of the reforms could be eliminated.

Florida Chief Financial Officer Alex Sink hopes to reduce the state’s exposure to hurricane losses, and Posey will sponsor legislation to achieve that goal.

Source: Orlando Sentinel (FL) (02/09/08) Deslatte, Aaron

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