Fast Focus
	Florida’s approach to catastrophes is to use unrated or poorly rated carriers, raising questions about how much protection there really is.
	Every person and business with a Florida auto or property policy will be on the hook—unless the feds come to the rescue.

Committing Insurance Without a License

WHAT? ME WORRY? Florida's hurricane insurance reforms mean every Florida insurance consumer may be buried under surcharges piled atop surcharges--all to create cheap rates today. Some see a federal bailout in the offing.

By  Cheryl Arvidson

In Tallahassee, it’s nail-biting time for Jack Nicholson. June marks the start of hurricane season. Nicholson is the director of the Florida Hurricane Catastrophe Fund, and he is looking at the skies these days, wondering if the state will once again dodge the bullet and escape without a major hurricane.

For the past two years, the state has defied prognosticators who are convinced it’s just a matter of time before a monster forms out in the Atlantic and smashes into the Florida coast. Not only was there no “Big One,” there weren’t any hurricanes at all to cause trouble for Floridians in 2006 and 2007.

The big winners, in addition to the homeowners and businesses that avoided devastation, were the Florida legislature and Gov. Charlie Crist. Their solution to high rates and capacity issues following Hurricane Katrina and seven other hurricanes in 2004 and 2005 was to put the state four-square into the insurance and reinsurance business, devising a plan to give people insurance while keeping rates artificially low.

But when one replaces an insurance system based on private capital and premiums based on risk with one that relies on borrowing after the event and sets premiums based on politics, it’s just a matter of time before someone has to pay the piper. The first person on the line will likely be Nicholson, whose agency was way out on a ledge during the 2007 season, with $27.83 billion in reinsurance exposure, and expects to be on the hook for nearly $30 billion this season.

Of that total, some $11 billion is reinsurance coverage for Florida’s state-run Citizens Property Insurance Corp. Although Citizens is described as the state’s insurer of last resort, under the state’s political approach to insurance, it essentially has become the insurer of first resort. All a Florida resident needs to do to get insurance from Citizens is show a private insurer’s quote that is 15% higher than Citizens would charge. That’s not hard, since Citizens has had its rates rolled back and frozen by legislative fiat for the last few years. It is the largest insurer in the state, writing 1.3 million policies with $485 billion insured value at the end of 2007.

As Florida State Rep. Dennis Ross, R-Lakeland, one of only two legislators to vote against the so-called reforms of 2007, says, the state isn’t really in the insurance and reinsurance business at all; it’s in the debt-issuing business. And therein lies the Florida shell game.

People buy insurance from Citizens or from a number of thinly capitalized new companies that have come in, many with state help, to replace more established insurers that have pulled back or pulled out because they can’t compete with Citizens’ rates and other regulatory requirements. The rates paid by Citizens policyholders are low now, but here’s what happens if and when a decent-sized hurricane hits:

· The Florida Cat Fund will need to issue enough bonds to pay the tab for Citizens and the private companies that have bought reinsurance from the state at artificially low prices. At least Nicholson hopes he can issue enough bonds to pay those obligations, but that’s another part of this story.

· Citizens then will take that Cat Fund reinsurance payment and probably have to issue bonds of its own to cover whatever shortfall exists so it can pay the insurance obligations it has taken on—again, assuming it can find takers for those bonds.

· And the tab for those bonds will be paid in the form of assessments on every person and business in Florida with a property or auto policy, even people who don’t live in Florida but have a Florida policy on a second home or car or business. Everyone—repeat, everyone—even those who placed their p-c policies with a company other than Citizens, will pay. Those assessments could last up to 30 years.