Florida moving ahead with commercial lines reinsurance pool

Florida is moving to reactivate a state-run reinsurance pool for commercial lines insurance to help businesses obtain insurance.

The Commercial Joint Underwriting Association (JUA) is intended to provide property insurance coverage to business owners who have been unable to secure it from private insurance companies.

Florida Gov. Jeb Bush had announced late last month he was considering the idea of a state-run reinsurance pools, saying that if companies can’t get coverage, it could lead to an economic downturn.

On Aug. 1, his Cabinet voted to authorize the JUA’s reactivation.

Tom Gallagher, Florida’s chief financial officer, applauded the decision by the Bush and Cabinet.

“Eight storms inflicting $38 billion in insured losses have created a crisis in Florida’s property insurance market, and our state’s homeowners and business owners are being held hostage as a result,” said Gallagher.

The decision was met with caution by insurers, however.

Cecil Pearce, American Insurance Association vice president, for the Southeast, urged that the JUA’s mission be strictly defined.

“Any commercial joint underwriting authority (JUA) must be carefully targeted to address the real problems that exist in the market, while not unintentionally creating additional problems. To that end, we urge the Office of Insurance Regulation to clearly define the scope and extent of the current market difficulties and to design the commercial property-casualty JUA to resolve those specific difficulties.”

Pearce said insurers consider a commercial JUA to be a temporary, short-term fix for the current availability problems in the commercial property market.

“Long-term, we urge Florida policymakers to focus on solutions that address the fundamental challenge of attracting sufficient private insurance capital to Florida to support a growing and dynamic state,” he said.

Reinsurance back-up
Bush said he favors a program that would offer reinsurance to back up private insurance companies, rather than a program that would sell insurance directly to businesses. Reinsurance is coverage that insurers have to protect against their own losses from paying claims.

The Republican governor had asked Insurance Commissioner Kevin McCarty to prepare a plan for a business insurance pool for the Cabinet’s approval.

Bush’s proposal came after Senate President Tom Lee and CFO Gallagher suggested resurrecting such a pool. It existed before Hurricane Andrew in 1992, but was disbanded.

The problems that many homeowners and businesses in Florida have in getting coverage for hurricane damage are well known, and state policy makers have tried to deal with that issue for years. Citizens Property Insurance Corp. is a similar pool that sells hurricane damage policies for those who can’t get it in the private market.

But businesses in Florida have reported trouble getting any kind of coverage and had their policies canceled and rates increase. Insurance companies have been reluctant to offer policies because they’ve had a hard time getting reinsurance. Some companies can’t get wind coverage either, and can’t get Citizens coverage because of where they are.

Creating an insurance pool that would guarantee companies could at least find a policy would add some stability to the state’s insurance market, Bush said.

The governor’s idea is slightly different from Gallagher’s. The Republican candidate for governor envisions a pool to underwrite the risk for business policies but with insurance companies continuing to sell and process claims. Gallagher said that a pool should only be used when no other insurance is available.

Gallagher is also proposing having reinsurance more available by making it easier for companies to tap into the state’s reinsurance fund, the Florida Hurricane Catastrophe Fund, or CAT fund. Currently companies can tap into it to back themselves up once their losses hit $5.2 billion. Gallagher is suggesting lowering the threshold to $3 billion.

Lee is proposing expanding the amount of reinsurance coverage available from the CAT fund if the insurers agree to take over coverage of homes that would otherwise have to be covered by Citizens. He also proposed using surpluses in the state’s affordable housing trust fund to help pay to strengthen the homes of poor people in the hopes of lowering their insurance premiums.

Associated Press reports were used in this story. Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Topics Florida Carriers Commercial Lines Business Insurance Reinsurance Hurricane Property A.J. Gallagher