Carrie Cope on Storm Clouds on the Horizon: A New Assessment Raises Concerns for Some Florida Insurers
Some Florida insurers are facing new assessments in the event the Citizens Property Insurance Corporation sustains a budget shortfall in the coming years. This is the result of the Florida State Legislature’s expansion of
Florida Statute § 627.351, to apply to all property and casualty premiums with limited exceptions. Depending on the weather, some insurers and their policyholders could face years of additional assessments which could ultimately test the solvency of the Florida insurance market.
In this Expert Commentary, insurance specialist attorney Carrie Cope, a partner in the Chicago office of Tressler, Soderstrom, Maloney & Priess, LLP, discusses the countless problems Floridians and their insurers have had to deal with after the series of catastrophic hurricanes that have hit Florida in recent years and the Florida Legislature’s response to these events. The author writes: “On one hand, increasingly alarmed homeowners have been faced with widespread policy rate increases and nonrenewals. On the other hand, burdened insurers, who have been attempting to cope with the detrimental effects of catastrophic claims, have been prohibited from raising rates and, in some cases, withdrawing their books of business from the State. In 2002, the Florida Legislature responded to the turmoil by enacting Florida Statute § 627.351, which combined the Florida Residential Property and Casualty Joint Underwriting Association and the Florida Windstorm Underwriting Association and created the Citizens Property Insurance Corporation (“Citizens”). Citizens was designed to provide insurance to homeowners in high-risk areas and to others who could not find coverage in the open market. However, the impact of a series of hurricanes in 2005 created major difficulties for Citizens.”
The author also discusses how the severity of the losses incurred as a result of the 2005 hurricane season, combined with insufficient premiums, left Citizens with a staggering $1.7 billion shortfall, and the amendments to Florida Statute § 627.351 that the legislature enacted in a Jan. 2007 special session. The author writes: “a special session of the Florida State Legislature in January 2007 addressed concerns over potential future deficits by broadening the assessment base to include more insurance lines. Florida Statute § 627.351, was amended to apply to all property and casualty premiums except for workers’ compensation and medical malpractice premiums. The result has some insurers outraged. While it seems logical to some that insurers writing property insurance coverage for hurricane claims should share in the assessments, it also seems inequitable that other insurers who do not write such coverage should be impacted as well. For example, why should an insurer writing animal, elevator, or entertainment coverage be subject to the assessments merely because the coverage is offered in Florida?”
The author continues: “There is also concern among insurers over the conditions under which an assessment may be levied. No criteria exist for when an assessment is levied, other than Citizens’ need for additional funds. The assessment can apply if there is a catastrophic event or if there are other budgetary issues. Although there is great concern among some insurers writing property and casualty policies in Florida, the impact on many insurers may not be substantial unless the deficit sustained by Citizens is extremely high or Citizens sustains deficits over an extended period so that the assessments overlap. The amount of assessments a company will be subject to will be in direct proportion to the amount of business it writes in the State.”
The author concludes: “Currently, experts are forecasting an above average hurricane season for 2008. In the event insurers and their policyholders are subject to multiple overlapping assessments, the result could ultimately test the solvency of the Florida insurance market. However, if history is any indication of how the Florida Legislature will respond if that occurs, it is likely to come up with a long-term solution.” .”