The serious challenge to Florida’s economy, the rising cost of property insurance and five solutions to hurricane issues were discussed on Nov. 7 in Tallahassee by Florida’s CFO Tom Gallagher at a briefing attended by Insurance Journal.
“I was disappointed to see the poorly-crafted plan unveiled by Democratic legislative leaders a few weeks ago because if implemented, it would cost taxpayers billions and lead to a state government being the only insurer of catastrophic risks in Florida,” Gallagher said. “While I disagree with their proposal, I agree that our state needs a comprehensive solution to insurance.”
Gallagher said the state’s insurance consumers faced similar market pressures after Hurricane Andrew, which caused $22 billion worth of damage in today’s dollars.
‘Multi-faceted package’
Gallagher suggested a “multi-faceted package” to address insurance issues. He targeted three challenges: 1) Reinsurance is becoming less available and more expensive; 2) Florida homeowners are currently exposed to too much liability; and 3) Florida families need assistance in dealing with the costs of storm recovery.
State-level recommendations
Gallagher urged the Florida Legislature to earmark sales tax revenue collected from hurricane recovery to offset assessments against homeowners. He also called for standardizing Florida’s building code statewide, and capping coverage of homes at $1 million or less in Citizens Property Insurance Corp., the state’s insurer of last resort.
He is expanding the Department of Financial Services mediation program to include condominiums. The program, established after multiple hurricanes in 2004, has been used by more than 11,000 homeowners with a 92 percent settlement rate.
Displaying a map showing the paths of recent hurricanes across Florida, Gallagher said in 15 months, eight catastrophic storms caused $32 billion in insured damages.
Meeting the challenges
Gallagher outlined immediate challenges to the insurance market. He said reinsurance costs in the worldwide marketplace are expected to rise between 25 and 50 percent. At the same time, he predicted availability of reinsurance could decline by 25 to 30 percent.
“Displaced condominium owners have been delayed in their recovery efforts due to long, multi-year legal battles incurred by condominium associations with their insurance companies,” Gallagher said. “But there is no silver bullet; we need to deal with these issues in a comprehensive manner.”
“I am pleased to see that Congress appears ready to act on some of the legislative issues facing our nation right now,” he said. “But we can not rely on the federal government alone and anything less than a comprehensive, substantive approach will be inadequate to address these issues.”
First, Gallagher urged Congress to reform the National Catastrophic Fund. He said Fifth District Congresswoman Ginny Brown-Waite is working on a proposal that deserves strong consideration.
Second, Congress should consider Congressman Mark Foley’s legislation allowing tax-deferred catastrophic reserves for insurance companies.
Third, he suggested standardizing building codes statewide.
“We are getting up to code a little quicker than anyone would have expected,” Gallagher said. “All new homes have to meet local building codes, any major redo of houses need to meet the code, so we are getting there.”
Fourth, we must address the size of Citizens Property Insurance, the state’s insurer of last resort. Citizens was not designed to handle 600,000 homes, despite its well-publicized problems, Citizens has been vital for Florida’s citizens and especially its economy.
Homeowners, realtors, mortgage providers and our construction industry all depend on the availability of insurance. If not for Citizens a quarter of Florida’s homeowners, 800,000 homeowners would have no insurance at all.
If you can not get insurance, you can not get a mortgage, and without mortgages most real estate transactions do not happen and Florida’s families will be unable to buy homes.
“No one has been a clearer critic of Citizens during the past 16 months than I have,” he said. “I have led the call for them to be more responsive to their customers, to do a better job on handling claims and to get their house in order.”
Gallagher based last year’s hurricane-related sales taxes at about $800 million, so he proposes that the first hurricane-related tax dollars that come in they should automatically go into lowering or eliminating the need for an assessment on the citizens of Florida.
He suggested hurricane-related sales taxes should be statutory, so that those dollars, up to the amount collected, would go toward eliminating the assessment.
Fifth, Gallagher addressed the unique challenges faced by homeowners in dealing with rising premiums at the same time they are paying for existing damages.
“Mil-lions of Floridians live in condominiums, condo residents have been significantly impacted by the storms of 2004 and 2005,” Gallagher said. “We need to provide condominium associations with an optional fourth reserve account in which they can set aside money to pay for damages to the structures of condominiums and assist their owners for a quick recovery.”
Gallagher said DFS is providing insurance mediation for condominium communities, just as it does do for single-family homes, to provide a better process for resolving claims without the lengthy legal battles that so many condominiums are facing. He said the mediation process has been a success for residential policyholders.
He cited statistics indicating that since last year DFS conducted more than 11,000 mediations for single-family homes with a 92 percent success and settlement rate.
Tax-free CAT savings accounts
“Finally, Floridians deserve the opportunity to save money tax free to pay insurance deductibles and uninsured losses, Gallagher said. He urged Congress to create individual catastrophic savings accounts so families can save tax free for storms.
Gallagher said he has met with state leaders in Washington, D.C., to discuss this issue and last year the Legislature made preparations for catastrophic savings accounts, now we need Congress to act.
Since last year DFS has assisted more than 585,000 Floridians with questions and help for request after the storms and advocated on behalf of 61,000 consumers. He said 88 percent of those complaints that we were involved with were resolved in favor of the consumer, that is 54,000 families that DFS helped to rebuild their lives.
He said that working with Gov. Bush and the legislature, $43 million was refunded to hurricane victims burdened with multiple deductibles.
Topics Florida Catastrophe Hurricane Homeowners A.J. Gallagher
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