Column: Calmer Waters for Insurance Market

Jun 11, 2012

The following article was published in the Lakeland Ledger on June 11, 2012:

Calmer Waters for Insurance Market

By John Rollins

Hurricane season is here, and the Atlantic has already fired up the 2012 storm machine with tropical storms. Like most Floridians, you should prepare in advance of a threatening event.

In the political swamp of Florida’s annual legislative sessions, it’s easy to overlook real progress, so let’s highlight one thing you won’t have to worry about this season — expensive, immediate post-hurricane taxes in the form of “regular assessments” from your property insurance company.

The persistent efforts of Sen. Steve Oelrich and Rep. Ben Albritton, supported by legislative leaders in each chamber, brought us House Bill 1127, signed by Gov. Rick Scott in April. This new law cuts out a layer of the post-storm taxes slapped onto nearly every property-, auto- and liability-insurance policy in the state, saving you hundreds or even thousands of dollars after a big storm.

You may ask, “What taxes? I didn’t know about this.” Most Floridians don’t. Rates for property policies from both Citizens Property Insurance Corp. and private insurers (through their mandatory participation in the Florida Hurricane Catastrophe Fund) are kept artificially low by paying hurricane claims with state debt taken on after the storm, rather than money accumulated up front from premiums. We then pay back our creditors with proceeds from assessments, which come in three layers.

First, but only if you are insured by Citizens, there is a Citizens policyholder surcharge of as much as 45 percent of your premium.

Second, one-time regular assessments of as much as 18 percent are charged to non-Citizens insurance companies and immediately passed through to your bill.

Third, emergency assessments of as much as 30 percent may be levied again, each year, until the storm costs are paid off. Policyholders are still paying emergency assessments from Hurricane Wilma in 2005 and will be until at least 2016. The law cuts the regular assessments from as much as 18 percent to a maximum of just 2 percent.

When Citizens was established, it needed claims-paying funds but had no credit with banks and investors. Insurers became the “bank” by fronting millions of dollars to Citizens within 30 days after a storm, then turning to policyholders to get it back within one year.

Accounting-rule changes and financial worries in Florida’s private insurance system have made that process anachronistic and undesirable, and Citizens — reflecting its often-unheralded management staff — has strong credit worldwide. Now, there is no need to give policyholders a triple whammy while discouraging new insurers from entering our market, and so our state leaders simplified the system and smoothed out the payments.

Cutting back the regular assessments reduces the subsidy from non-Citizens policyholders, largely middle-class inland residents, to Citizens customers.

It gives consumer and business budgets more certainty. Nobody wants to get hit with new taxes just as Florida’s economy tries to recover from a major disaster. Also, it encourages new and existing insurers to write more policies and compete at lower rates.

The best system is one in which Florida rates reflect the storm risk of each property, and we finance inevitable hurricanes with premiums and reserves, rather than piling on more debt. But the perfect is often the enemy of the good. Kudos to the responsible statesmen in the Legislature who realized this amid all the 2012 political distractions and accomplished a major change for the better in property insurance.

[ John Rollins is an independent consulting actuary in High Springs. He was appointed by Gov. Rick Scott to the Citizens Property Insurance Corporation Board of Governors in 2011. ]

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