Florida Cabinet Reviews Florida Hurricane Catastrophe Fund, Citizens, FIGA; Approves Two Insurance-Related Proposed Rules for Publication
Date Published: 03-09-2011
At its regular meeting today, March 9, 2011, the Florida Cabinet, acting in its capacity as the Financial Services Commission ("FSC"), considered several insurance-related items. To view the complete meeting agenda, click here.
Following the FSC's approval of its November 9, 2010 meeting minutes, Florida Insurance Commissioner Kevin McCarty introduced Raymond James Managing Director John Forney to make a presentation on the financial condition of the Florida Hurricane Catastrophe Fund ("FHCF"), Citizens Property Insurance Corporation ("Citizens") and the Florida Insurance Guaranty Association ("FIGA"). Mr. Forney serves as the financial advisor to all three entities on behalf of Raymond James.
Mr. Forney explained that the size and nature of catastrophic risk in Florida puts it in a different financial category than other states, inasmuch as it is very difficult for private markets to insure this type of risk under any circumstance. Because of events like 1992's Hurricane Andrew, which wiped out approximately 50 years' worth of insurance premiums collected in Florida, private insurers have started to withdraw from the State and similar types of markets, such as earthquake-prone California. However, he said, Florida's problems are not intractable.
Likening the FHCF a wholesale participant in the Florida market, Mr. Forney explained that it serves insurance companies, not individuals. The FHCF reimburses insurers for statutorily-specified losses after hurricanes, and not other types of events, such as sinkholes.
Mr. Forney characterized Citizens as a retail participant, with over one million policies providing coverage for hurricanes, sinkholes, fires, theft and other types of losses. Citizens serves mostly individuals and some commercial customers, he said.
The purpose of FIGA, Mr. Forney explained, is a contingent one--to pay insolvencies of private insurers.
What all three entities have in common is that the State of Florida has endowed them with the capability to assess and bond. However, there are no guarantees that these entities would be able to access capital to pay all of their obligations in the event of a major loss, he added.
With regard to reducing reliance on assessments and ensuring that claims can be paid in a timely manner, Mr. Forney said that Senator Garrett Richter's property insurance bill, SB 408, addresses the "low-hanging fruit" in the Florida market's insurance problems, including public adjusters, claims payment changes and sinkhole changes.
Mr. Forney said that the current system of post-event ad hoc subsidized bailouts must end, such as what occurred following Hurricane Wilma. As a solution, he recommended a pre-funded, actuarially sound, nonsubsidized government program that would provide balance to the system and entice large national insurers such as State Farm and Allstate back into the Florida market.
He also recommended that the FHCF be kept at "the right size," and emphasized that it must not fluctuate in size from year to year, since this could prevent private companies from planning reinsurance purchases properly. Mr. Forney said that a combination structure of surplus and post-event financing with a mandatory layer of about $17 billion would be manageable.
Florida Chief Financial Officer Jeff Atwater asked about sinkhole "tail" claims. Mr. Forney, while not making specific recommendations, replied that, indeed, these types of claims need to be addressed. He also noted that part of the "tail" problem is the length of time that policyholders have to file a claim.
Governor Rick Scott interjected that the lack of a requirement to fix damage from a loss is also an issue. Governor Scott also asked whether SB 408 adequately addresses these and similar types of problems, to which Mr. Forney responded that, although SB 408 contains lots of positive measures that move in the right direction, its proposed fixes should be measured. Further, he warned about going "too far, too fast."
Florida Commissioner of Agriculture and Consumer Services Adam Putnam asked whether exposure and replacement costs have declined as property values also have declined in the current real estate market. Mr. Forney responded that the inverse has occurred. He added that exposure has increased dramatically, along with replacement costs, and that perhaps they were undervalued in recent years.
According to Mr. Forney, the current financial markets are positive for accessing capital, but factors can change.
Mr. Forney also commented that Citizens' large size is a symptom of Florida's property market deficiencies. However, Citizens will always be a player in Florida, he concluded.
Following Mr. Forney's presentation, Governor Scott commented that he and the Cabinet Members are committed to making the right changes in the property insurance market.
The FSC then approved without objection the filing of the following proposed insurance-related Rules for publication:
- 69O-137.001: Annual and Quarterly Reporting Requirements
- 69O-138.001: NAIC Financial Condition Examiners Handbook Adopted
To access the Florida Office of Insurance Regulation agenda and descriptions of these proposed Rules, click here.
Should you have any questions or comments, please contact Colodny, Fass, Talenfeld, Karlinsky & Abate.
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