Property Bill Goes to the Wire; Cost Drivers at Issue
The 2010 legislative session begin with fairly widespread recognition that the residential property insurance market in Florida has been set back by several “cost drivers” warranting legislative attention. The Florida Cabinet held discussions about why insurers have been losing money in recent years even without hurricanes affecting the state. Insurance Commissioner Kevin McCarty identified for the Financial Services Commission, the legislature and others the primary reasons insurers have reported lackluster underwriting results over the last 18-24 months. In addition, the Florida Commission on Hurricane Loss Projection Methodology, the storm center associated with the Florida State University College of Business, and Risk Management Solutions each prepared reports identifying problems with the state’s mitigation discount program.
Altogether, these and other sources highlighted a need for reforms relating to the state’s mitigation discount system, sinkhole claims, depreciation holdbacks and other aspects of the property insurance market. Without key changes in these areas, insurers will continue to experience upward pressure on rates and have difficulty accumulating the surplus in non-storm years that is necessary to buffer against the inevitable hurricanes that will strike Florida.
With just a week left in the session, legislators continue to debate major property bills in both chambers. On a positive note, the bills in each chamber contain provisions that would help address the cost drivers. Unfortunately, some of these cost drivers have become controversial and are the subject of existing or potential amendments that would limit their effectiveness. By failing to address these cost drivers, the legislature would avoid any short-term criticism that might come from passing measures that are perceived to be friendly to the insurance industry. However, the long term costs will be far more profound as the state continues to be plagued by inflated insurance claims and premium shortfalls. These deficiencies manifest themselves in the form of both higher insurance rates, decreased availability in the private market, growth in Citizens Property Insurance Corporation, and ultimately increased residual market and guaranty fund assessments imposed on all Floridians.
The House and the Senate have reached common ground in number of areas, but some of the key provisions of the property bill reflect significant differences between the chambers. By week’s end, we hopefully will see a resolution on these issues and solutions that will help restore stability to the residential property insurance market.