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Date of Issue: January 04, 2007

Insurance: Cat fund. Cherry picking. Mitigation. Wind boundaries. The pups.

Get used to the headline terms because they are among the big issues that lawmakers are expected to discuss, argue about and fight over when the Florida Legislature meets Jan. 16 in Tallahassee for a special session on the property insurance crisis.

Legislators "are still formulating" bills, according to state Rep. Bill Galvano, who represents District 68,including western Manatee County. He's been leading an effort to find solutions. The challenge, he said, is for the Legislature to "create an environment for rates to be lower."

In a Dec. 22 interview with The Islander, Galvano identified five key issues that go to the heart of the insurance-rate crisis that has gripped Anna Maria Island and the state in recent months, as affordable insurance for homeowners and small businesses vanish from the market.

Near the top of the list of likely reforms, he said, is a reconfiguration of the Florida Hurricane Catastrophe Fund, also known as the Cat Fund. Created by the Legislature in 1993, the Cat Fund sells reinsurance to insurance companies at a lower cost than the regular private market. This has the effect of lowering insurance premiums for consumers.

"The simple answer is that there is a pot of money that we have all contributed to, and it is this Cat Fund," Galvano said. "And there are certain things, such as hurricanes, that trigger its availability. What we are looking at is giving insurers easier access to those funds so that they can factor it into their rates."

Lawmakers at this point are divided over how to restructure the Cat Fund. Galvano said the proposals to reshape the Cat Fund "range from one extreme to the other."

A second major issue in the insurance debate is "cherry picking," an industry practice that Gov.-Elect Charlie Crist criticized in his campaign. Crist argued that insurers should be prohibited from picking and choosing only the most profitable lines of insurance — the cherries — when doing business in Florida while leaving the state to cover the least profitable insurance.

"If you sell homeowner insurance, wind insurance and auto insurance in Georgia," Galvano said, "then you shouldn't be allowed to come to Florida and just sell what is profitable." He says this issue will "get a lot of debate."

And so will mitigation, the issue of strengthening homes and buildings to be more resistant to storm damage. Florida has a $250 million hurricane mitigation program to help homeowners fortify their dwellings by installing shutters and making other improvements.

But the controversial legislation known as Senate Bill 1980, passed in May, left it to insurers to factor homeowner mitigation efforts into insurance rates, Galvano said. "I understand that concept," he said, "but people can't just guess on what makes the rates. If they are going to make that investment in mitigation, they need to know what the savings are going to be, because that makes for an informed decision."

Galvano said he hears complaints from people who upgraded their homes and their rates still went up or their coverage was canceled, so he wants the Legislature "to make sure that insurers recognize the mitigation that people are undergoing."

A fourth issue coming before this special session will involve the state-established wind pool boundaries, which determines eligibility for coverage with Citizens Property Insurance Corp., the state's insurer of last resort.

On Anna Maria Island, a property has to be within 1,000 feet of the Gulf of Mexico shoreline to qualify for Citizens. Residential property can qualify for Citizens, regardless of location, but only if no other regulated insurance coverage is available, but commercial properties must be "in" the wind pool area of coverage.

Property owners who don't qualify for Citizens may be faced with a choice of going without wind coverage because it is not available, or paying much higher prices for coverage from unregulated carriers.

Galvano believes that his proposal to eliminate the wind boundary lines will pass the special session "based on what I presented to the full committee two weeks ago, and the very positive response that the proposal received."

Fifth and final are the "Pups."

This is the term coined to describe the Florida-only subsidiaries of national insurance companies. "These are the corporations that exist only in Florida and don't show the income they make elsewhere," Galvano said.

Crist opposed the operation of the Pups, as well as the industry's cherry-picking, during his campaign. Gov. Jeb Bush criticized Crist for his position in early November at the height of the campaign for his seat. Bush said that the Crist proposals would "do more harm than good" because they might drive more insurers from the state.

Now, with Bush leaving office in January, the Crist proposals are gaining momentum.

"Two weeks ago when we were in Tallahassee (for a legislative planning session), record profits were announced for insurers," Galvano said. "So lawmakers recognize that the insurers are making money and that helps bring those other issues to the forefront."

Galvano said he would like to see legislators listen to expert testimony "to put people under oath and really get down to what is happening. There are a lot of questions out there that aren't being asked: What are the top CEOs of these insurance companies earning? What are the profits and losses?

"I would like someone to explain to me what is responsible for the record profits other than record premiums."


Crist supports national action

Florida's governor-elect sent out a batch of letters Dec. 21 urging top congressional leaders and the governors of every state to support the legislation proposed by U.S. Sen. Bill Nelson to create a Commission on Catastrophic Disaster Risk and Insurance.

Crist, a Republican, said that Senate Bill 3114, introduced earlier this year by Nelson, a Democrat, "would address the rising national problem of affordable homeowners insurance" by establishing a bipartisan task force that would examine proposals to alleviate the insurance crisis facing so many U.S. homeowners.

He described the availability and affordability of property insurance for the citizens of Florida as one of the most critical issues facing the state. Immediate and long-term solutions to this problem are essential, he said.

"Nothing is more on the minds of Floridians than the skyrocketing cost of property insurance," Crist said. "It is vital that we put an end to soaring insurance premiums and protect the dreams of the Florida homeowner."