House insurance panel visits WPB for hearing

Feb 12, 2008

By Julie Patel–Feb. 11, 2008

A retired homeowner, an insurance agent, a mayor and a Realtor toldfederal lawmakers gathered in West Palm Beach on Monday that they need the federal government’s help to address Florida’s property insurance crisis.

"Some disasters are just too large or unpredictable for the private market to manage alone," said Charles Bonfiglio, president of the 150,000-member Florida Association of Realtors.

That’s why Florida congressmen Ron Klein and Tim Mahoney pitched the Homeowners Defense Act last year that was passed by the House of Representatives but stalled in the Senate. The hearing Monday – held by the House Subcommittee on Oversight & Investigations – was intended to start building support for what’s expected to be an uphill battle to rally support for the Senate’s version of the bill.

The Act, co-sponsored by half a dozen Florida congressmen, would broadly expand the federal government’s role in addressing soaring homeowner insurance premiums and dropped policies, and would lower the risk of state-backed Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund, which insurers use as backup coverage to help pay storm-related claims.

The bill would allow states to apply for low-interest loans from the federal government if a disaster strikes and would allow state-sponsored insurance funds – such as the Florida’s $28 billion catastophe fund – to voluntarily pool their risk and then issue bonds to transfer some of the risk.

It has only been in recent years that federal lawmakers have seriously considered efforts to help stabilize windstorm insurance prices. The Homeowners Defense Act, passed in the House by a 258-135 vote in November, was considered a major win for states that support regulation. Major private insurers raised rates or dropped policies in high-risk areas after hurricanes in 2004 and 2005, prompting coastal states to expand programs that subsidize coverage for policy holders or provide backup coverage for insurers.

But Florida leaders say they can’t bear the risks alone and need help from the federal government. Insurance Commissioner Kevin McCarty told lawmakers that, "to some extent, Florida subsidizes" the federal flood insurance program because it pays about 41 percent of the premiums and has only received about 16 percent of the claims. Now, he said, other states need help and the best way to do it is to spread the risk across the country.

Wellington Mayor Tom Wenham said the insurance crisis is hurting residents and the local government. The village of Wellington’s insurance costs more than quadrupled from $175,000 in 2004 to $719,000 last year, he said.

Lawmakers said the insurance crisis was once viewed as an issue that affects effects only a few states. But the recent wildfires in California and the tornadoes last weekÖ in the South demonstrate that disasters are becoming a national problem as the population grows, construction prices rise and about half of all U.S. residents live near the coast.

"Hurricanes don’t select Republicans or Democrats to impact," said North Carolina Rep. Congressmen Melvin Watt, chairman of the subcommittee. "This is not a partisan issue or a class issue. It impacts the whole country."

The future of the Homeowners Defense Act appears bleak because the Bush administration is vehemently against it, but Democratic leaders said they’re banking on the bill going before the president before the November election, when there may be more pressure for him to sign it. The Bush administration has said intervention from the federal government would prevent private insurers from setting rates high enough to cover risks and that insurers and reinsurers may get crowded out if they can’t compete with government-backed coverage, according to the 2007 Economic Report of the President.

The report also argues that policy holders are less inclined to improve their homes and businesses to safeguard against hurricanes, if they’re not paying the true cost of projected storm risks and if they think the federal government will step in and help when disasters strike.

Speakers at the hearing debunked that criticism, saying that the free market has failed because insurers can make higher profits by dropping policies. "As far as I know they’ve haven’t come up with anything better," Watt said of critics.

McCarty said insurance isn’t a free market because most people must obtain it in order to secure a home loan.

"You don’t have the unfettered, willing buyers and sellers" as there are in other industries, he said.

In fact, many of the large, national insurers such as State Farm, Allstate and Nationwide have stopped selling new polices statewideor are canceling, said Alex Soto, president of InSource, Inc., a Miami-based independent insurance agency and a past president of Independent Insurance Agents & Brokers of America. Soto said the Homeowners Defense Act could help by bringing more backup coverage to Florida.

Klein, Mahoney and others at the hearing expressed interest in exploring on the national level some ideas that Florida leaders have developed, such as providing incentives for making homes safer, much like tax breaks provided to make homes more energy-efficient, and creating a state-approved hurricane risk prediction method that is used by insurers to set homeowner insurance prices.

Julie Patel can be reached at 954-356-4667 or