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Date of Issue: November 30, 2006

Insurance: No solutions yet, rate debate continues

insurance davis
Frank and Jo Davis, owners of Harrington House, a Holmes Beach bed and breakfast, say the Citizens Property Insurance increases recommended for Island property owners are "mind blowing" and threaten residents as well as small businesses. Islander Photo: Molly McCartney

Harrington House owner Frank Davis can't quite believe what he's been hearing about the 767 percent rate increase proposed by Citizens Property Insurance Corp. for commercial wind coverage.

"It's mind-blowing," Davis said.

The proposal is so outrageous, he said, that it must be part of a political showdown between Citizens, the state's insurer of last resort, and state lawmakers, who mandated one of the requirements behind the Citizens rate proposal. "There is a little bit of political posturing going on here," Davis said, "and if it isn't, then everybody is in trouble."

Harrington House, a beachfront bed and breakfast in Holmes Beach, is one of the dozens of Manatee County commercial customers now covered by Citizens.

Wind rates for these small businesses, many of them on Anna Maria Island, will skyrocket 767 percent if the recommendation developed by Citizens actuarial and underwriting committee is eventually approved. The committee has recommended an increase of 1,263 percent for commercial wind customers in Sarasota County. Substantial increases also are recommended for residential policyholders.

But a firestorm has developed in recent days over the proposed rates, which are scheduled to take effect March 1.Bruce Douglas, chairman of the Citizens board of governors, said last week that he opposes what his own actuaries have proposed. In an interview published in the St. Petersburg Times, Douglas said the March rate increase must be eliminated because the economic impact would be too severe.

"I have no dog in this fight except to represent the policyholders," the Times reported he said.

He will have his chance to do that when the Citizens board meets Dec. 7 in Gainesville to consider the increase proposal.

Citizens, the state's largest insurer, has about 1.3 million policyholders and a loss exposure of nearly $400 billion.

Concern about that exposure was an important force behind Senate Bill 1980, a new state law aimed at reducing future losses for Citizens and ultimately the state's taxpayers.

The law requires that Citizens include the cost of reinsurance when setting its rates, even though Citizens does not have to buy reinsurance. The idea, according to some insurance analysts, was to bump up Citizens rates to make Florida a more attractive market for standard insurance companies.

In developing its rate proposal, Citizens also took into account the higher rates charged by the Florida Property and Casualty Joint Underwriting Association, created in September to provide wind coverage for commercial property owners who were not eligible for Citizens.

Actuaries for Citizens said their recommendations for the March rate increases are rooted in state law.

But some legislators complain that Citizens went beyond the requirements of the law.

State Rep. Don Brown, Defuniak Springs, was quoted in a Sarasota Herald-Tribune story last week as saying that Citizens has misread the new law. He noted that the proposed increases have "created a good deal of consternation and hysteria."

Brown also said, "If they want to press that issue, we will intervene."

State Rep. Bill Galvano, who represents western Manatee County, had expected a special legislative session to be called for early December to address the Citizens rate proposals and the state insurance crisis.

"The word around the capital is that we will have a special session, but not in December," he said last week. "They are now talking about January."

Galvano was "very disappointed about the timing for a special session, but the insurance issue has to be dealt with. Everybody in the chamber is feeling it from their constituents."

The challenge, he said, is for lawmakers to act in time to impact the rates that insurers set for 2007.

Harrington House owner Davis is also eager for solutions to the insurance imbroglio, which he says "scares the heck out of everybody" and threatens Island residents as well as small businesses.

"Just about every hotel on the beach is listed for sale, and it's not just because of the insurance," he said. "It is the taxes, the employee benefits, everything hitting the small business people so hard that many of them have to rethink their priorities and whether to sell and get out."

Davis and his wife Jo started their bed and breakfast in 1989 and intend to keep it open as long as they can. But small business owners can only absorb so much of the increasing costs for insurance and taxes, he said. "When you get all these costs eating away at you, the margin of profit dwindles … and who knows how much an individual business can take."