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Quest For Low Insurance Rates Risks Solvency

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By BOB LOTANE

The Tampa Tribune

Published: August 9, 2008

Insurance Commissioner Kevin McCarty sounded a warning recently when he told the chairman of Lloyds of London, "The threat of continuing global warming is an issue that all Floridians need to be thinking about, because unless we all take action to help reduce its effects, the frequency and severity of future storms that strike Florida could bring about devastation greater than we ever have seen."

With this in mind, is our current insurance rate structure threatening the solvency of our state?

Rates can rise when a higher rate is approved or through an assessment passed along by one of three entities: the Florida Insurance Guaranty Association (FIGA), the Florida Hurricane Catastrophe Fund or Citizens Property Insurance Corporation.

Citizens' officials testified this year that their rates are substantially inadequate, and these rates are frozen through 2009. A similar rate freeze in 2002 prevented Citizens from having adequate reserves for the 2004-05 hurricanes; therefore, all of our home and auto policies are being taxed. Another bad hurricane(s) could lead to more and larger assessments.

We also tread dangerously in approving numerous new insurance companies called "takeout companies" which have removed thousands of policies from Citizens, the state-run insurer. While they are vital to the market, OIR requires these companies to send a letter to prospective policyholders stating they will charge a rate that is at or below what you are currently paying Citizens. If they fail, their claims would end up in FIGA and lead to assessments.

Shouldn't there be a public hearing, overseen by a neutral third party, to explore the financial consequences we face? Recently the state had difficulty closing a CAT Fund bond deal for $625 million - yet the fund's exposure is $29 billion.

Commissioner McCarty has not pointed to quantifiable evidence that predicts any reduction in global climate change. Therefore, we need to examine whether insurance rates reflect the danger he says threatens Florida.

The writer is spokesman for the Florida Association of Insurance and Financial Advisors. He can be reached at lotane@faifa.org

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