Information from the Office of Insurance Regulation re Insurance Commissioner McCarty Calls for Tougher Building Codes for Panhandle 7/11/06

Below is a press release received by our office regarding Insurance Commissioner Kevin McCarty’s call for tougher building codes in the panhandle. Also included is a copy of Commissioner McCarty’s testimony before the Florida Building Commission. Please review and feel free to contact this office with any questions you may have.

Regards,

Katherine A. Scott

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INSURANCE COMMISSIONER MCCARTY CALLS FOR TOUGHER BUILDING CODES FOR PANHANDLE

TALLAHASSEE (July 11, 2006) – Florida Insurance Commissioner Kevin McCarty today testified before the Florida Building Commission (FBC) on the need to expand Florida’s tougher building codes to areas of the Panhandle that had been exempted. The Florida Building Code allows wind-borne debris regions from Franklin County to Escambia County to be limited to one mile from the coast, instead of the five (5) to 20 miles that is typical for the rest of the state.

McCarty testified to the FBC that attracting global reinsurers back to Florida is vital to addressing the affordability and availability problems in the state’s insurance market and the industry knows that homes built to the updated Florida building codes survived the 2004 and 2005 hurricanes extremely well. Therefore, “I am asking the Florida Building Commission to be proactive by passing tougher building standards for the Florida Panhandle region and bring this region up to par with the rest of the state,” McCarty said.

McCarty said that the assumption that the Panhandle is less likely to be hit by hurricanes than southern or central Florida has been disproved during the last two hurricane seasons. While McCarty admitted that another assumption – that tree coverage in the Panhandle would mitigate the possibility of damage – has some merit, he pointed to public and private studies, in addition to the extensive inland hurricane damage on the Gulf coast, to make the case that this theory no longer can justify the Panhandle carve out.

Pointing to a survey by the Institute for Business and Home Safety which showed that 72% of Floridians in the Panhandle want homebuilders to construct homes with wind-borne debris protection, even at a higher cost to home buyers, McCarty called on the FBC to end the Panhandle exemption from the wind-borne debris requirements.

Today’s workshop was the final chance for public comment before the FBC holds a final vote on the future of the Panhandle wind-borne debris regions on August 23rd. Florida’s statewide building code currently requires wind-borne debris protections in areas subject to 120 mph winds.

A copy of McCarty’s testimony is attached below.

Insurance Commissioner Kevin McCarty’s Testimony

Before the Florida Building Commission

July 11, 2006

Chairman Rodriguez, and esteemed members of the Commission, thank you for allowing me to testify on the issue of retaining the Florida Panhandle exemption to the Florida Building Code. As you know, the Florida Building Code allows wind-born debris regions from Franklin County to Escambia County to be limited to one-mile from the coast, instead of the five (5) to 20 mile typical for the rest of the state. I am here to advocate that this must be changed if we want to have a viable and competitive property insurance market in Florida.

We are Facing an Insurance Coverage Crisis in Florida

Although we all remember Hurricane Katrina, let us not forget that the last two hurricane seasons featured an unprecedented eight (8) major hurricanes causing $38 billion in damage to Florida alone —- $70 billion to the entire Gulf Coast region. In Florida these storms affected all 67 counties — and damage was not limited to within one-mile of the coastline.

The consequences of these damaging storms have been clear: We are facing a capacity, availability, and affordability problem in the Florida Insurance market. One of the reasons is the lack of reinsurance. Recently four surplus lines companies were forced to stop writing property coverage due to the lack of reinsurance.

I have spoken with representatives of the global reinsurance markets in the Caribbean and Europe to encourage additional capital for Florida’s insurance marketplace. Frankly, it is a difficult sell. The global reinsurance markets have little interest in increasing their risk in Florida. As a consequence, there has been significant retrenchment in the industry, translating to less availability for Florida’s insureds, and consequently, more policies being absorbed by the higher-priced Citizens Insurance Corporation.

There are only two ways to alter this equation to increase reinsurance participation in our markets. One is to lure additional capital through public-private partnerships. As you know, I have represented the NAIC to lobby Congress to establish a National Catastrophe Fund to accomplish precisely this objective.

Another way to lure reinsurers back into this market is to lower the hurricane risk by mitigating the damage. I am pleased to report the Florida Legislature passed the Florida Comprehensive Hurricane Mitigation Program to provide free home inspections and grants for policyholders to retrofit their houses to reduce windstorm damage. This program will be an effective step to mitigate damage from hurricanes – but let us not forget this is a retroactive measure. In addition to this program, I am asking the Florida Building Commission to be proactive, by passing tougher building standards for the Florida Panhandle region, and bring this region “up to par” with the rest of the state.

The Origin of the Exemption

The Florida Panhandle exemption is based on two premises: 1.) Hurricanes are much less likely to hit the Florida Panhandle than southern and central Florida; and 2.) Tree coverage lessens wind-borne debris, which in turn, lessens wind storm damage.

Tragically, the last two hurricane seasons proved the first assumption wrong as Hurricanes Frances, Ivan, and Jeanne in 2004, Hurricane Dennis in 2005, and even Tropical Storm Alberto in 2006 all caused damage in the Florida panhandle region. What’s more, let us recall the devastation caused by Hurricane Katrina which ultimately created $38 billion in damage, and required a $100 billion bail-out by the federal government. Prognosticators initially predicted this category five hurricane to hit Florida — not Louisiana. We were lucky. If the weather patterns would have been slightly different — the images you saw on the news of the human suffering and structural damage could easily have been in Pensacola, Fort Walton Beach or Panama City — not New Orleans. As it was — Hurricane Katrina missed the Florida border by less than 100 miles.

The second assumption is that the tree coverage in the Florida panhandle would reduce wind speed and reduce damage. There is some merit to this argument.

However, according to a report by the U.S. Commerce Department’s National Institute of Standards and Technology (NITS) for regions away from the coast-line, wind-born debris was the leading cause of damage during Hurricanes Rita and Katrina. This is reinforced by another study by engineers from the Institute for Business Home and Safety (IBHS), which found one-third of homes without protection from wind-borne debris had at least one broken window allowing wind and water damage during Hurricane Charley.

While it is true that tree coverage can reduce wind speed, the trees themselves can be a hazard as fallen branches can contribute to wind-borne debris, not to mention that fallen trees can cause damage to homes and other insured structures. As the Insurance Commissioner for the state of Florida, I have toured damaged areas of Florida and the surrounding Gulf States caused by the eight devastating hurricanes of 2004 and 2005 some properties on the coastline, some properties many miles inland. I have observed communities with new homes, and tougher building codes, and those that had older homes, and insufficient protections from wind-borne debris. The differences were stark.

The Choice is Clear

The choice is clear from an insurance standpoint, a reinsurance standpoint, and most importantly from the perspective of Florida’s consumers. Prior to Hurricane Katrina – Louisiana, Mississippi, Alabama and Texas all did not have uniform statewide business codes. Florida does have uniform standards with one glaring omission — the Florida Panhandle. The Florida Building Commission can change that glaring omission.

In Conclusion

A survey by the Institute for Business and Home Safety (IBHS) showed that 72% of Floridians in the panhandle want homebuilders to construct homes with wind-borne debris protection – even at a higher cost to home buyers. Moreover, 64% were unaware that the building standards were weaker in the Panhandle than for the rest of the state. Strengthening building standards in this region can also encourage more insurance capital to enter our state — which ultimately will translate to greater competition in the property insurance market, and lower premium rates for consumers.

Thank you for allowing me to speak with you today about this important issue, and I sincerely hope you think about these facts as you make your deliberations. This concludes my testimony, and I would be glad to answer any of your questions.