News & Updates


Group seeks fix to insurance dilemma

03/26/2009 © Bradenton Herald

Dan Montgomery said there has to be a better way to insure Floridians against a potential Hurricane Andrew-like storm than to continue to pour money into Citizens Property Insurance Corp. and the state’s Hurricane Catastrophe Fund.

Neither entity can truly protect the state if it suffered a major storm hit, he said.

That’s why Montgomery has started the Shield Our State Coalition, a St. Petersburg-based group with a plan to change the way hurricane insurance is handled in the state.

Basically, Montgomery’s plan would have private insurers continue to write homeowners policies in the state. But premium dollars collected on the wind portion of policies would go directly to a reserve pool maintained by the state that would be used to pay future storm claims.

“Our core premise is that the people of the state of Florida, one way or another, are going to have to pay for hurricane risk,” Montgomery said. “They are paying $6.5 billion a year in premiums. And what use is that going to? It’s going out of state and in many cases out of the country and into the pockets of reinsurers. What’s left in the state of that money to pay hurricane damages? Our plan takes that same money, but keeps it right here in the state in what I call HIP – the Hurricane Insurance Pool.”

Montgomery calls the current system broken. He notes that Citizens Property Insurance Corp., the state-created insurer of last resort, has had to go back to the state for more funding to cover its claims from past storms.

Legislators also have been trying to find a way to shore up a $18 billion shortfall in the state’s CAT fund, which has about $10.5 billion in cash and bonding capabilities to pay future claims.

“All you’ll find is a mountain of debt,” Montgomery said. “The magnitude of that debt if we were hit this year by an Andrew-type hurricane, would be about $14,000 per household on top of the highest premiums in the nation that they are already paying.”

Montgomery, who spent time working on Wall Street and has 16 years experience in catastrophe insurance claims, may have allies in his pursuit.

State Rep. Ellen Bogdanoff, R-Fort Lauderdale, House Minority Leader Franklin Sands and Senate President Pro Tempore Mike Fasano have been working on legislation that would have the hurricane portion of policies covered by the state.

But not everyone is convinced it would work. State Rep. Ron Reagan, R-Bradenton, believes it would take time to build up enough reserves through the plan to cover the effects of a serious storm.

“I think while it’s well-intentioned it doesn’t help us immediately. It shifts all the hurricane coverage to the state,” Reagan said. “I don’t believe the state should be in the hurricane business if we don’t have to be. I think the idea in the long run may have merit, we need to continue to look at it. I would prefer to have the wind covered by private money and private participation.”

Montgomery believes that after administrative costs, the state could bank about $5 billion a year in reserves in the Hurricane Insurance Pool. He said the money would be able to compound, tax-free, and therefore grow quickly.

Andy Gregory, co-owner of Des Champs & Gregory, Inc. insurance in Bradenton, strongly opposes Montgomery’s plan.

“It’s ridiculous because it puts the state on the hook for the largest catastrophe-prone exposure that exists,” Gregory said. “When private industry exists to be able to offset that risk, why subject the state to it?”

Gregory believes such a concept would drive independent agents out of business because large insurers would undercut their prices, knowing they would only be covering lower-risk perils like fire and theft.

“The direct writers will come in and undercut, competition would end up limited, and in the future, prices would begin to rise,” Gregory said. “It’s a form of socializing when we don’t have to. He’s not thinking this through.”

Bob Lotane, spokesman for the National Association of Insurance and Financial Advisers-Florida, says the agency’s members are split on the issue but open to new suggestions.

“We have members who support concepts such as this and we have others who have reservations or who are not as supportive,” Lotane said. “They do agree, however, that we need out-of-the-box thinking such as this to address the difficulties in the market.”

© 2009 and wire service sources. All Rights Reserved.

Imported: Mar 26 2009 4:23AM Indexed: Mar 26 2009 4:32AM