Insurance Reform: Get It Done . . . Right.
by Florida-Based Property Insurance CEOs Group
This year’s hurricane season is especially worrisome for Floridians. In addition to the prospect of devastating storms, there is deep concern about the ability of the insurance industry to cover hurricane losses and a debate over why many insurers are not building surplus when Florida has gone five years without a hurricane.
As CEOs representing Florida-based property insurance companies, we share this concern and see the need for a stronger private market place.
It’s in everyone’s best interest for Florida’s private insurance companies to attract capital so risk is spread among more, well-managed carriers. The large national companies were forced to reduce their hurricane exposure in Florida after paying billions of dollars in claims from Hurricane Andrew. The state-run Citizens Property Insurance Corporation was created to fill part of the gap. It was equally important that new private insurers be organized – insurers able to access capital globally and reinsure a substantial portion of their risk with well funded international reinsurers.
To facilitate the growth of Florida-based insurers, legislators and insurance regulators approved the insurer/managing general agency structure. MGAs have worked effectively for almost 20 years now, allowing the commitment of billions of dollars of capital to this state.
Through MGAs, an insurance company can be organized or an insurer from out of state can expand into Florida quickly, without having to build the policy service and claims infrastructure of a traditional insurer. An insurer/MGA partnership can offer dividends sooner than a regular insurance company and this is important to attracting investors to a state like Florida with such a severe hurricane risk.
Citizens would be dramatically bigger today except for Florida-based insurers established through the MGA structure and the potential for statewide assessments following a major hurricane would be dramatically greater.
A handful of MGAs may have made questionable financial decisions and allegations of inappropriate behavior have surfaced, which should be investigated and addressed by the Office of Insurance Regulation. Legislation being deliberated should strike an appropriate balance, avoiding unwarranted regulatory overreaching that would scare away investors and addressing the factors that have caused many carriers to suffer financial losses.
The MGA structure is not the problem. The real problem is rapidly declining revenues within insurers, due to rate rollbacks in 2007; questionable hurricane claims almost five years after Hurricane Wilma; frivolous sinkhole insurance claims; excessive mitigation credits fraud on the part of a few players in the mitigation inspection system; and the inability of insurers to recoup increased costs, including expenses driven by the national economic crisis.
We have been working with OIR to make certain the steps we take this session are truly moving the state toward more affordable insurance, provided by stronger well-managed companies. We encourage legislators to embrace plans that protect property owners, prevent financial mismanagement and preserve our ability to attract much-needed capital to the market.
We hope they will act with a sense of urgency driven by the severity of the need. The wrong legislation and regulations could lead to more, long-term damage than any natural disaster we have ever faced.
