Insurance Reform: Capital is Key to a Healthy Florida Market
Guest Column by Ernie Csiszar
The Florida Legislature is considering some important reforms to its property insurance laws that will shore up the state’s weakened private insurance market. Among these are provisions aimed at stopping fraud, limiting the timeframe in which hurricane claims can be filed and providing more scrutiny for questionable sinkhole claims.
All of these issues have been identified by Insurance Commissioner Kevin McCarty as major cost drivers, and it is critical that the state address them as quickly as possible. However, as past president of the National Association of Insurance Commissioners, I caution Florida lawmakers not to jeopardize its successful managing general agent (MGA) structure that has served Florida well in the past. With minor reforms, MGAs can remain a vital part of rebuilding a healthy insurance market.
That’s because Managing General Agents (MGAs) have been very effective at spreading risk among other insurers. Florida needs more capital to offset its enormous exposure and MGAs are one of the state’s most important tools for bringing in that capital, either directly or through reinsurance.
Over the past 10 years, Florida-based domestic property insurance companies have weathered the storms here, even after the terrible 2004-05 hurricane season when an unprecedented number of back to back storms caused millions of dollars in damage.
These Florida-based carriers survived and paid out 2.5 million claims worth some $30 billion in losses. They were able to do this and still remain attractive to investors. Florida should encourage more MGAs to operate here, but that won’t happen if their incentives are stripped away.
Remember: Capital goes where it is invited and stays where it is welcomed by a reasonable rate of return.
My caution to Florida lawmakers is this: In other states, a few bad apples and some breathless reporting have led to harsh regulations and ill-conceived legislation. In some cases, that’s just inconvenient. In Florida’s case, it would be catastrophic. If Florida is seen “withdrawing its invitation” to capital investors, the state will be left with some companies unable to pay claims and others unable to recapitalize after a storm.
All of the state’s risk will be borne by taxpayers, and one major hurricane could leave them with a major tax bill. I encourage the Florida Legislature to pass measured actions aimed at protecting consumers. But that must be done in such a way that it preserves the MGA structure that is so critical to attracting potential investors and to spreading risks. And it must prevent the claims fraud, abuse and delays that also contribute to the problems.
With careful, thoughtful legislative changes, Florida can shore up its property insurance industry and provide effective oversight to the MGAs. However, ill-conceived regulatory changes will bring the entire system crashing down.
That would be a disaster and the consequences could be more devastating than any hurricane on record.
Ernie Csiszar has served as the Director of Insurance for the State of South Carolina and as president of the National Association of Insurance Commissioners. Currently, he is on the faculty of the University of South Carolina Moore School of Business as a clinical professor of finance and still consults nationally on insurance issues.
