Property insurance reform has productive Week 2 in 2012 Florida Legislature - Citizens and Cat Fund called Florida's "two sick children"

Two initiatives intended to further reform Florida's property insurance market were heard in committee during week 2 of Florida's 2012 legislative session. The reforms are directed at both Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund, characterized in House debate as Florida's "two sick children."

• Reduction of Citizens Regular Assessments. This simple measure would decrease Citizens' regular assessments from a maximum rate of 18% (current law) to 2% (proposed), shifting the balance of deficit assessments to the emergency assessment mechanism. As regular assessments are payable directly by insurers and can be a drag on their balance sheets, a reduction in regular assessment exposure should provide a modicum of encouragement for the private insurance market to return to Florida. The impact on policyholders would be neutral or even beneficial.  As a result, the measure has wide support from business and insurance associations, as well as from the Florida insurance regulators (OIR and DFS's Insurance Consumer Advocate). In legislative action this week, the Senate bill (SB 1346) was unanimously approved by the Senate Banking & Insurance Committee, while an identical House bill (HB 1127) was workshopped in the House Insurance & Banking Subcommittee.  For further information, see the Senate staff analysis.

• Downsizing of Cat Fund.  In contrast to the Citizens assessment bill, the Cat Fund "downsizing" bill is both complex and controversial.  The House proposal (HB 833) was workshopped this week in the House Insurance & Banking Subcommittee; there was no action in the Senate.  

The Cat Fund is Florida's government-run reinsurance program for hurricane insurance. The proposal to downsize the Fund is supported by the business community (see YouTube Video for Downsizing of Cat Fund), the private reinsurance industry (against which the Cat Fund competes at a lower cost), and segments of the private insurance industry. Arguments in favor of the proposal include: (i) that the Cat Fund will not have sufficient funds to reimburse insurers, (ii) that Cat Fund assessment exposure is a drag on Florida's economy, and (iii) that private reinsurance brings private capital into Florida. 

On the other hand, opposition has been expressed by some Florida-only insurers (which depend on the Cat Fund for lower-cost reinsurance) and by Citizens (which obtains substantial reinsurance coverage from the Cat Fund). An argument in opposition to the proposal is that, by decreasing Cat Fund coverage (and increasing its costs), private insurers will see an increase in expenses that they will need to pass on in the form of higher premiums, while Citizens' premium increases continue to be capped at 10% per year; thus, private insurers may be even less able to compete with Citizens on the basis of price (such that Citizens will continue to grow rather than shrink) and the private market will continue to stagnate.

Should this bill move forward, I would expect changes from its current form. For more information, see: House panel looks to shore up Cat Fund, ease assessments (The Florida Current, Jan. 17, 2012).

For additional updates on week 2 action, see 2012 Key Insurance Bills tab of TallyInsLaw.com.

This summary was prepared by Perry Cone and posted at TallyInsLaw.com.

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