Aid for young insurance firms weighed
Apr 8, 2008
Miami Herald--Apr. 08, 2008
BY BEATRICE E. GARCIA
A bill will hit the floor of the state House of Representatives Wednesday that proposes to use $250 million from the state-run insurer’s reserves to fund a capital-buildup program for young or start-up insurance companies.
Initially, the bill proposed taking $100 million from the surplus that Citizens Property Insurance has stockpiled to pay future claims. When the proposed House budget was delivered a week ago, the amount for the capital-incentive program had increased to $250 million.
The bill was amended before it got to the House Policy and Budget committee last Thursday. Now, the plan is to have the funds returned to Citizens — with interest.
The program will ”borrow, not take,” the funds, said Rep. Ron Reagan.
This capital-buildup program provides matching funds to insurers, up to $25 million, to help the companies expand more rapidly. The program was started in 2006 with $250 million from the state’s general budget. Thirteen companies received loans in 2006 and early 2007.
Citizens would still prefer that lawmakers find another source to fund the surplus note program, but the changes made so far make it a bit more palatable, said Christine Turner, director of consumers and legislative affairs.
It was state Chief Financial Officer Alex Sink’s suggestion that the money taken from Citizens reserves be returned in some form. The insurers that tap the program will pay only interest for the first three years of the 20-year loans.
To make the proposal more appealing to Citizens, which is the largest insurer of homes, apartments, condos and mobile homes in Florida, the insurers receiving the surplus loans would be required to take up to 10 percent of the new policies from Citizens.
Reagan believes that some of those policies will have to come from South Florida and other coastal regions of the state, thus reducing Citizens’ exposure by as much as $18.7 billion in one year.
State regulators don’t allow takeouts of wind-only policies from Citizens. So any policies that these insurers in South Florida take from Citizens would be west of Interstate 95 and South Dixie Highway (U.S. 1).
Also, the money would would not come from Citizens until December. That way, the money would be available to Citizens for claims if needed during this hurricane season.
While reducing Citizens’ exposure is a plus in any scenario, Citizens officials note that funding this program is an expensive venture for the company. In the past, Citizens paid hefty bonuses to encourage insurers to take policies out of Citizens. In total, it has paid $150 million for takeouts on more than a million policies.
A similar measure is expected to be added to a wide-ranging insurance bill in the Senate that comes up before the General Government committee on Tuesday.
More changes in the bill are expected in the Senate.