Column: Insurers have their hands full this session

Feb 25, 2013

The following article was posted to the website on February 22, 2013:

Mark Hohmeister: Insurers have their hands full this session

By Mark Hohmeister

Raise your hand if you have read your entire homeowner’s and automotive insurance policies, as well as each “Important Notice” that arrives in the mail.

OK, both of you can put your hands down.

There’s a theory that you should give a new book 50 pages before you abandon it. With insurance, it’s more like 50 words. Sorry, but my eyes have closed before I get to the end of: “In this policy, ‘you’ and ‘your’ refer to the ‘named insured’ shown in the Declarations and the spouse if a resident …” Zzzzzzzzz.

May our visitors forgive me, but it can be the same when we have meetings on insurance policy. In the past two weeks, we have had two groups talk to the Editorial Board about insurance issues facing the Legislature this session.

This is important stuff. It affects the budget of every homeowner. If disaster strikes, it will really affect your budget — and the budget of the entire state. But how do I get excited over reinsurance, premium-based resources, underwriting, JUA, FIGA, OIR, PIP and STOLI? (Well, actually we did perk up at that last one, thinking we were going to start talking about vodka.)

Let’s see if I can translate some of the issues into English.

The biggest concern is Citizens Property Insurance Corp. and the Florida CAT Fund. The state-supported Citizens, intended to be an insurer of last resort for homeowners, somehow became the biggest property insurer in Florida. The CAT Fund basically insures insurers. The fear is that when a big storm hits — please ignore the fact that no hurricane has made landfall in Florida since Wilma in 2005 — the losses will be more than Citizens and the CAT Fund can handle. (Note that superstorm Sandy caused more than $28 billion in insured losses in the Northeast.)

If there is a need for more money to pay claims, guess who covers it? You, whether you were hit or not.

Solutions include relying more on the private insurance market (but wasn’t Citizens formed because private companies couldn’t keep up?), raising Citizens’ rates (which the millionaire with a beach home can absorb, but the oysterman can’t) and reducing the CAT Fund’s obligations (but who picks up the slack?).

Insurers also are facing headaches over the implementation of Obamacare. Gov. Rick Scott’s announcement this week that he now supports an expansion of Medicaid shows how fluid this situation is. The Legislature will have two select committees discussing the matter in early March, employers are trying to gauge what the law will mean to them, and insurers are doing the same.

“It will have a dramatic effect,” said Sam Miller, executive vice president of the Florida Insurance Council, Florida’s largest insurance trade association, “but we just don’t know how.”

Then there is PIP, the state’s no-fault car-insurance system. The Legislature passed reforms last year to target fraud, and this week Senate President Don Gaetz wanted to know where the savings were. Hold on, say the insurers. The law has been in full effect for less than two months, and Cecil Pearce, president of the Florida Insurance Council, says it might be a year or two before we know if the changes worked. Plus, your rates still might not go down — they just might not go up as quickly as they otherwise would.

There’s one more issue — STOLI, an acronym for Stranger-Originated Life Insurance. A stranger can’t take out an insurance policy on my house or car, but apparently unscrupulous investors have figured out a way to take out a policy on my life, which is the basis of STOLI.

An investor offers a senior citizen a deal that seems too good to refuse: cash in exchange for naming the investor as the beneficiary of a life insurance policy. The investor then takes over the policy — and waits for the senior to die.

At first blush, it seems harmless — if a bit creepy. But seniors can be on the hook for unexpected federal taxes and also may find that they no longer can buy life insurance for themselves, because they are so heavily insured already.

The Florida Insurance Council considers this to be fraud under current law and, though there are no bills introduced concerning STOLI, it is encouraging legislators to resist any efforts to make it easier for STOLI operators.

So, on Citizens, the CAT Fund, Obamacare, PIP and STOLI, the bottom line seems to be: We need to do something, even if we aren’t sure what it will be … or when.

I wouldn’t want to be an insurance lobbyist trying to sort it all out. But at least they shouldn’t have any trouble staying awake.

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