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Storm Warnings

By James Call


Tallahassee, FL – Hurricane season begins June first, and there are questions about whether insurers will be able to pay if a big storm hits Florida. James Call reports failing insurance companies have state officials waving red flags.

The Florida Office of Insurance Regulation has ordered five companies to stop writing insurance policies this year. Although a hurricane hasn't hit the state for nearly five years, companies claim they are losing money. Some have left the state and others have gone out of business. To help lower the cost of doing business, Kevin McCarty, the state's top insurance regulator, has relaxed some rules, like the one requiring companies to have the wherewithal to pay for what is on average a one in one hundred year storm.

"We just want them to be cognizant that there are other risk factors that are out there that they do need to be cognizant of, that may be more of a risk to the solvency of their company."

CFO Alex Sink had asked McCarty to brief Governor Crist and the Cabinet about his tweaks to regulations. She said she is concerned about the regulatory environment.

"Well, the bottom line for me is that the Florida consumer is assured that when a storm occurs or any event occurs, loss event occurs, that they are going to get their claims paid."

Florida regulators are still scarred by Hurricane Andrew. The 1992 storm that caused $25-billion dollars in damages usually comes up when regulators discuss a company's ability to pay. There is, however, another threat. In 2004 and 2005, eight hurricanes and three tropical storms hit Florida. None were a 100-year event, but together they were far more expensive than Andrew.

"Well, I would say that if we fail to take into account a recurrence of the 2004 and 2005 event that had several repeated storms and focus merely on the one in 1990, I think we would not have been properly doing our job supervising the companies."

Kevin McCarty's job is to make sure insurance companies have the money when homeowners file claims. McCarty said the agency works with financially impaired companies to make changes to their business plan. That may include lowering the amount of reinsurance that companies must buy. A reinsurance policy pays the insurance company after it pays a set amount of damage claims. Sink's concern is that less reinsurance for the companies equals more vulnerability for homeowners. She wants McCarty to take a harder line with the companies.

"I think it is important for these companies to have adequate reinsurance to cover a one in one-hundred year storm, just like most of the other states require."

McCarty must balance that concern with others. If he fails, Florida pays. If private insurance companies say Florida regulations cost too much, then they stop writing policies. That would force more customers into the state owned Citizens Property Insurance Corporation, and that would make all Floridians more vulnerable to paying the bill after a big storm. Lawmakers say McCarty's decisions have failed to create competition in the market and that increases the state's liability. Agriculture Commissioner Charles Bronson spoke after McCarty's briefing.

"You're back to square one. It's all about risk especially on the payments on these expensive pieces of property on the coast and so forth, that Citizens is being, I'm going to have to say, stuck with because we are basically being stuck with some of the more expensive pieces of property that have to be insured because these companies don't want to put themselves in that position."

That's when the owners of those pieces of property Bronson called expensive turn to the state of Florida and Citizens, the state owned insurance company. As of April, it had more than a million policies and a total exposure of $405-billion dollars, or nearly six times the amount of the state budget.