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Date of Issue: January 25, 2007

Insurance: Lawmakers seek sensible solutions

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State Sen. Mike Bennett said lawmakers were negotiating "hot and heavy" to reach a compromise package of insurance reforms, including premium reductions. Islander Photo: Molly McCartney
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State Rep. Bill Galvano said he's optimistic about legislative efforts to provide affordable and available wind insurance coverage for Anna Maria Island and other high-risk areas of the state. Islander Photo: Molly McCartney

Tallahassee - State legislators have produced a "big win" for Anna Maria Island in their effort to resolve the state insurance crisis in the judgment of state Rep. Bill Galvano, R-Bradenton, who represents western Manatee County.

That is because legislators, in tense bargaining over the weekend, have agreed to eliminate the controversial wind-zone boundaries that have split the Island down the middle, he said.

Now all commercial and residential property owners on the Island - and elsewhere in the state - will be able to buy wind coverage from the state's Citizens Property Insurance Corporation, he said.

This will represent a dramatic change in the law, Galvano said.

A final vote approving this and other state insurance reforms was expected Monday afternoon in the Florida Legislature. The new legislation also must be signed by Gov. Charlie Crist before it would become effective.

"This is a big win for the Island," Galvano said.

Businesses on Anna Maria have been among the hardest hit by the state requirement that a commercial property be within 1,000 feet of the Gulf shoreline to be eligible for wind coverage from Citizens, the state's insurer of last resort. As a result, some commercial properties have no wind insurance, either because they could not find any or they could not afford what was available from the private market. Other commercial owners outside the wind zone have paid huge increases in the past year to buy wind policies from unregulated surplus line carriers.

Residential property owners not within the 1,000-foot boundary have access to Citizens, but only if they cannot find coverage from a standard company.

The legislative agreement to allow Citizens to insure commercial property statewide came near the end of a fast-moving week of legislative activity that one lawmaker described as a "train driven by hysteria."

That lawmaker saw the seven-day session as a moving train - with railcars filled with panicky legislators - desperate to satisfy worried constituents and a new governor who has been pushing aggressively for major reform and big premium cuts.

Under growing pressure to respond, state lawmakers worked feverishly through the weekend to reconcile key differences in competing House and Senate insurance reform plans.

Negotiations inside the conference committee, made up of senators and representatives, were "hot and heavy," according to state Sen. Mike Bennett, R-Bradenton, who represents a five-county area that includes Anna Maria Island.

In the final hours, legislators agreed on a series of dramatic actions, including expansion of the Florida Hurricane Catastrophe Fund, to make more cheap reinsurance available to insurers. And companies would be required to pass their savings onto policyholders. Legislators said this would lead to significant premium reductions.

But nobody knows yet the amount of the reductions or the way that premiums might be cut.


Close agreement in the beginning

When the session opened on Jan. 16, there appeared to be close agreement on how to achieve broad insurance reform and significant premium reductions.

This meeting of the legislative minds occurred as demonstrators demanding rate relief filled the streets outside the Capitol buildings and Crist held press conferences telling legislators that he wanted premium reductions of at least 25 percent.

He said he wouldn't sign any legislation short of that goal.

Against this background, the House unanimously approved five bills on Wednesday, the second day of the session. One proposal called for the state to sell cheap reinsurance to companies. Another measure would repeal the Citizens rate hike scheduled for March. House proposals would also eliminate the "cherry-picking" by insurers who have sought to sell only the most profitable lines of insurance in the safest parts of the state, while leaving the riskiest areas to Citizens.

Shortly after the House approved its package, the Senate unanimously voted for its version of insurance relief measures.

As the two sides turned their proposals over to the conference committee to resolve the differences, there were high hopes that the session could complete its mission as early as Thursday or Friday.

That didn't happen.

Instead, lawmakers began to bog down in their differences. And other players - including newly elected Chief Financial Officer Alex Sink - began analyzing the legislative proposals and coming up with a different set of numbers and different concerns.

On Thursday, Sink announced that the Senate proposal to provide insurance companies with free reinsurance "gives me heartburn" because, she said, it put some risk on the state's bonding ability. She described the House version, which would sell the reinsurance at a low price to insurers, as more modest and "in the realm of do-ability."

Sink wasn't the only voice questioning the legislative numbers.

The state Office of Insurance Regulation (OIR) reported that the House plan would save policyholders only 13 percent, rather than the 25 percent that House sponsors claimed.

The Senate proposal would save policyholders 26 percent, but not the 35 to 40 percent that Senate sponsors had said, according to the OIR analysis.

Lemonade and chicken salad

Even more revealing was an exchange in a general session when Sen. Bill Posey, R-Rockledge, was asked to explain the impact of the Senate rate plan on a homeowner who paid $1,000 for insurance last year and $2,000 this year.

Would the legislative proposal cut the homeowner's old premium of $1,000 or would it cut his new $2,000 premium?

According to Posey, the Senate proposal would reduce the homeowner's $2,000 bill.

So the homeowner would still have an increase in premium?

The answer, according to Posey, was yes, although he described it as a smaller increase.

In another exchange with a colleague questioning a senate proposal, Posey gave this response:

"We can make lemonade out of lemons. But don't expect us to make chicken salad out of chicken manure."

Other participants in the legislative process, including insurance representatives, argued that Florida lawmakers were on the verge of creating new and dangerous problems for the state instead of solving the insurance crisis.

"I travel the state and I know about the pain," attorney Mark Delegal told one legislative meeting. "But let's not forget the storms," said Delegal, who represents State Farm. "The villain here is the hurricane, not the insurance industry."

State Farm insures one of five homeowners in Florida but only in low-risk areas. The company has declined to provide homeowners coverage to Anna Maria Island residents.

Despite the tensions that developed in the legislative negotiations, Bennett said that he expected a compromise package to be approved by the Legislature on Monday. He declined to speculate on what the savings might be for policyholders.

"It's a crap shoot for now, as far as the numbers are concerned," he said.

The compromise package was still being mulled over by the House and Senate at press deadline for The Islander, and any reforms will still need to be reviewed and signed by Crist before they are enacted.

Insurers fund $11 million

The insurance industry paid out more than $11 million in campaign contributions in the last election, according to research by the St. Petersburg Times.

The newspaper used campaign finance databases to make its calculations. Here are the top recipients of the insurance money, the Times said in a Jan. 19 story:

  • Republican Party of Florida, $4,540,315.
  • American Insurance Association political committee: $670,000.
  • IMPACT (independent insurance agents): $502,994.
  • Republican gubernatorial candidate Tom Gallagher: $473,230.
  • Florida Democratic Party: $425,175.
  • Republican gubernatorial candidate Charlie Crist: $370,287.
  • Florida Association of Insurance Agents political committee: $356,852.
  • Republican CFO Candidate Tom Lee: $237,152.
  • Democratic CFO candidate Alex Sink: $169,561
  • Florida Association of Insurance and Financial Advisers political committee: $168,757.

The newspaper said that groups like the American Insurance Association distribute money to individual candidates.

The Times story quoted state Sen. Nancy Argenziano, R-Dunnellon, as saying that she worried about the influence that the insurance industry traditionally has on insurance reforms.

"They don't give millions to campaigns to be kicked to the curb," she said.