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Commissioner McCarty Identifies Top Five P&C Issues

Commissioner McCarty Identifies Top Five P&C Issues

Florida Insurance Commissioner Kevin McCarty has been discussing the “cost drivers” affecting Florida’s property insurance market since last year’s legislative session.  As the 2011 session draws near, Commissioner McCarty continues to identify the key factors affecting property and casualty insurers in Florida.  McCarty top five issues include the following:

1.  Attracting Capital–  Commissioner McCarty points out that as Florida’s economy recovers, the demand for insurance products will increase.  This will necessitate additional deployment of capital to Florida.  This translates to a need to develop new ways to invite additional capital to Florida.

2.  Changing Makeup of the Market–  McCarty notes that the contraction of large national insurers affects Florida and other states.  This leads to increased reliance on domestic insurers to fill the gap, in turn placing increased emphasis on the regulator’s solvency regulation.  This also results in reliance on international reinsurance markets, or the state must develop access to alternative methods of risk-sharing such as may be available through financial markets.

3.  Role of the Residual Market–  The role of Citizens Property Insurance Corporation is a source of renewed debate. At over 1.2 million policies, Citizens is the largest property insurer in Florida. Due to rate freezes implemented by prior legislatures, Citizens’ policies are priced below the private market, which is leading to market distortions.

4.  Identifying the Source of Costs–  Commissioner McCarty continues to see a need to address factors such as 1) the current replacement cost methodology, 2) a reported increase in fraud, 3) premium reductions from mitigation discounts; and 4) an increase in reported sinkhole claims.  Due in large part to these factors, insurers have been filing for rate increases over the last year and are expected to continue filing for increases until these sources of losses are addressed.

5.  Sinkholes–  The biggest issue of 2011 might be how the state deals with its sinkhole insurance problem.  McCarty notes that although sinkholes are one of the cost-drivers, they are important enough to merit their own item in his Top 5 list.  With nearly $2 billion in damage over the past five years, McCarty refers to sinkholes as “silent catastrophe.”  He notes that given sinkholes are unpredictable geological events, we must ask whether they are really an insurable risk.  If they are not, this could lead to a multitude of other challenges as both banks and consumers need to have some protections from this risk.