Florida

TALLAHASSEE, Fla. (AP) — A state-created fund that backs up private insurers in Florida could fall short of the money it needs to pay off hurricane insurance claims if a major storm were to pound the state.

A new round of estimates drawn up for an advisory panel concludes that the state could fall $1.52 billion short of what’s needed to cover its obligations for the fund.

On Tuesday, the panel will review and approve the estimates, which are similar to ones drawn up earlier this year.

Florida created a special fund after Hurricane Andrew caused widespread damage 20 years ago.

The Florida Hurricane Catastrophe Fund offers insurance companies reinsurance at prices generally lower than those in the private market. It was designed to help keep private insurers from leaving the state. Every company is required to purchase coverage.

But the fund has to borrow money if claims exceed its cash reserves.

Right now, the fund provides $17 billion worth of coverage. It would take a storm slightly larger than Andrew — which damaged tens of thousands of homes — to force the fund to cover all of its obligations.

The new estimates, which were drawn up by consulting with Wall Street firms, conclude the fund is expected to have $8.5 billion in the bank at the end of this year. The fund can also borrow up to $7 billion in the first year following a hurricane, which means it could still fall short of its obligations.

The $7 billion would be paid back with a surcharge placed on every property and auto insurance policy in the state.

Jack Nicholson, executive director of the fund, said one piece of good news is that the latest estimates were similar to ones drawn up last May right before the annual hurricane season.

In the last few years, ongoing fluctuations in the bond markets have made it hard to predict how much money the state could borrow.

But Nicholson says the volatility in bond markets is one reason why he continues to advocate for shrinking the size of the fund before the next hurricane season. Such a move is controversial because it could force insurance premiums to rise.

“We have been lucky the last six years, we haven’t been smart,” said Nicholson, noting the absence of any major storms hitting Florida since 2005.

The top financial advisers to the catastrophe fund emphasize that trying to figure out how much the state could borrow after a major hurricane is an “inexact science.” In the past financial advisers have also emphasized that the fund does not need all its funding at once since it can take months for insurance claims to be filed and paid.

The gap is slightly smaller than what it was in May, but it still reinforces the view of critics who maintain the fund could wind up being a financial disaster for the state. There is a fear that it would require direct aid from the state and federal government if the catastrophe fund is unable to cover all of its claims.

Automobile insurers have until Monday to show Florida regulators how much, if at all, they plan on reducing rates on the personal injury protection, or no-fault, portion of drivers’ policies. This could mean that Florida’s drivers will save money on their insurance bills.

A new PIP law still requires all Florida drivers to carry $10,000 in coverage for accident injuries, but created a lower ceiling of $2,500 in coverage for non-emergency treatment to cut down on abuses.

Jack McDermott, the communications director for the Office of Insurance Regulation, said it’s too early for state officials to really know how the changes in the law will actually affect motorists’ bills.

“It appears the effect of the law for most companies may be to reduce the amount of rate requests, which is a positive development, but not lead to actual PIP rate reductions,” said McDermott.

He emphasized that regulators still have 60 days to review the rate requests before a final decision is made.

Others are hopeful that premium reductions will show up more quickly.

“I fully expect significant premium savings and for those savings to be passed along from insurance companies to Florida drivers,” Florida Consumer Insurance Advocate Robin Westcott said. “By stemming abuses and controlling the skyrocketing costs that come with them, Floridians will see lower PIP premiums.”

Stemming the abuses, however, remains a huge challenge despite recent changes in the law aimed at doing just that, not to mention legal challenges that are likely to be filed after the new rates start taking effect after Jan. 1.

The thrust of Florida’s revamped PIP law was aimed at cracking down on the runaway fraud resulting from bogus pain clinics and staged auto accidents that was increasing the cost of coverage for drivers.

“The bad actors are not going to give up this gold mine easily,” said Sam Miller, vice president of the Florida Insurance Council, an industry group. “The heart of the new law is to focus PIP payments on emergency care and limit non-emergency care to $2,500. If we can’t make this work, all of the reforms may collapse.”

The new law puts a 14-day limit on seeking treatment following a crash. Benefits also will be capped at $2,500 unless a medical doctor, osteopathic physician, dentist, supervised physician’s assistant or advanced registered nurse practitioner determines the injured person has an “emergency medical condition.” Chiropractors cannot make that determination.

Bogus claims and faked accidents are largely responsible for a $1.4 billion increase in PIP costs since 2008, state officials say.

Some insurance experts fear that PIP coverage will be eliminated if the latest version isn’t successful.

“I think this is our last best chance,” said Michael Carlson, executive director of the Personal Insurance Federation of Florida. “You’ve got very smart people, both Democrats and Republicans, who would like to see PIP eliminated.”

But others, including Gov. Rick Scott and Chief Financial Officer Jeff Atwater, want to give it another chance.

The biggest problems have been, and continue to be, in South Florida and Tampa where the fraud is most prevalent and drivers face the most expensive insurance costs. Miami drivers pay an average of $3,193 annually for their insurance – the fourth highest in the country and triple the statewide average, according to statistics from the Insurance Information Institute.

A Hollywood physician and Boca Raton attorney have sent solicitations promoting ways to get around the state’s tougher standards governing the required personal injury protection portion of the insurance.

Dr. Alen E. Gordon of Hollywood wrote attorneys with instructions on what he needs to make immediate examinations and provide immediate reports to PIP insurers.

“We are able to give consultations, prescriptions, follow-up examinations, disability examinations, depositions and testifying in court,” Gordon wrote an omnibus letter addressed: Dear Attorney.

“We will make a rush appointment,” said Gordon, who provided his email address and fax number.

The Florida P.I.P. Law Firm, PA in Boca Raton has circulated an advertisement to medical providers and drivers with phone numbers where they can get legal advice on how to proceed in collecting the maximum amount available.

In a mailer to doctors, physician’s assistants and nurse practitioners, the firm outlined what conditions must be included in a diagnosis for the maximum $10,000 benefit to be paid.

“My office represents chiropractors under the ‘old’ PIP law and will continue to represent chiropractors under the ‘new’ PIP law too,” the advertisement read.

It’s not the first time – or last – that fliers have been sent out in advertisement form seeking ways around the new requirements.

A Tampa company sent fliers to chiropractors in early spring suggesting ways to capitalize on potential loopholes in new legislation.

Not surprisingly, Florida leads the nation in the number of staged accidents.

Since 1972, Florida motorists have been required to buy PIP coverage to make sure anyone injured in a crash receives money to treat their injuries in a timely manner. A driver’s insurance company is required to pay up to $10,000 for medical bills and lost wages no matter who is at fault.

Four private companies that missed the deadline to opt out of Florida’s optional reinsurance coverage will be able to pay $1.6 million in fines to avoid making payments on the coverage that would have cost as much as $4 million for one of the companies.

Homeowners Choice Property and Casualty Insurance Co. and American Coastal Insurance Co. will pay $500,000 each in fines and have already completed their settlement agreements with the Florida Hurricane Catastrophe Fund, or Cat Fund, and the State Board of Administration, the board that oversees the fund.

Settlement agreements for American Integrity Insurance Group and Cypress Property and Casualty Insurance Co. are pending while insurance regulators certify the companies would have sufficient private reinsurance without the state-backed reinsurance. Under the agreements, American Integrity would pay a fine of $335,000 and Cypress would pay a fine of about $280,000.

The companies signed up for Temporary Increase in Coverage Limit – optional reinsurance offered by the Cat Fund – in February. The deadline to opt out of the TICL coverage was June 1, but none of the companies did so.

But some of the companies think the situation was handled poorly by Cat Fund chief operating officer Jack Nicholson.

Nicholson did not like the TICL coverage and pointed to reports from May and October showing the Cat Fund had a shortfall, and couldn’t cover the $17 billion mandatory coverage, much less the $317 million in TICL coverage. Then insurance rating agencies announced they would not give credit to companies for TICL coverage, prompting them to seek private reinsurance coverage.

“Both (SBA executive director) Ash Williams and Jack Nicholson’s actions were unconscionable. They levied excessive penalties on insurance companies who replaced their TICL layers of reinsurance with ‘A’-rated reinsurers in the private market rather than the companies asking their policyholders to risk either delayed payments or no payments for their legitimate catastrophic hurricane claims because of the Cat Fund’s publicly announced inability to fund this coverage,”  Cypress CEO Gary Harger said.

But Dennis Mackee, spokesman for the SBA, says the companies bear the responsibility for not meeting the deadline to opt out, not the Cat Fund.

“The situation was created by the companies’ actions or inactions when they allowed the second deadline to pass which initiated coverage. In fact, this inaction provided them TICL coverage during this hurricane season. We acted prudently, deliberatively, and fairly with those involved to solve it in the best interest of the policyholders, the fund, and the citizens of Florida,” Mackee wrote in an email.

Despite his antipathy for TICL, Nicholson did not want to grant a waiver to the companies, suggesting it would set a bad precedent for companies by providing an incentive to sign up for coverage and then get out of it halfway through hurricane season. The settlements could provide a precedent nonetheless, albeit with some penalty in the form of fines.

“The more concerning precedent would have been no penalty for non-compliance, which could put the fund in an unmanageable situation in future years,” Mackee said.

Still, other industry watchers don’t understand why companies would be fined for getting replacement coverage in the private reinsurance market since TICL couldn’t be covered.

“These companies go do what Jack wants them to do at additional expense . . . and they get penalized for it,” said Jay Neal, executive director of Florida Association for Insurance Reform. “This is all mysterious to me. I find it absolutely bewildering.”

Florida’s hurricane fund chief is warning that the state-created fund used to help insurers pay off claims after a big storm is in danger.

The state has relied on a hurricane fund ever since Hurricane Andrew devastated South Florida nearly 20 years ago. Insurers get help to pay homeowners if a hurricane – or a series of hurricanes – results in widespread damages.

But Jack Nicholson, the chief operating officer of the fund, told state legislators on Wednesday that the fund is on “shaky ground.” He said ongoing turmoil in the world financial markets is raising questions about whether the fund could borrow enough money to help insurers after a hurricane.

This year the fund is providing $18.5 billion worth of coverage, and while it has more than $7 billion worth of cash on hand, it would still need to borrow another $11 billion.

“I think we are dangerously overexposed considering the current reality of the marketplace,” Nicholson said. “… It scares me to death where we are.”

Nicholson used the warnings as part of a pitch to state lawmakers to scale back the size of the Florida Hurricane Catastrophe Fund. That would likely cause insurance premiums to rise but it has the backing of many key Republicans, including Gov. Rick Scott.

Every insurer currently in Florida is required to purchase coverage from the “Cat Fund” as it also called. The fund provides a backstop to insurers at a rate that is generally cheaper than reinsurance sold by private companies. Nicholson estimated that this low-cost option probably results in insurance premiums being about 25 percent cheaper.

If a storm causes enough damages the insurer can ask for reimbursements from the fund. But if the hurricane fund runs out of cash due to a large storm, it borrows money to pay insurers.

The state pays off its debts with an assessment, or what some call a “hurricane tax,” that is placed on nearly every insurance policy in the state, including auto insurance policies. Right now, homeowners and drivers in Floria are paying off charges due primarily to Hurricane Wilma.

Nicholson, however, said he’s less worried about future hikes in the “hurricane tax” because right now he’s not sure he can even borrow enough money. He said the turbulence in the financial markets this summer has created “tremendous uncertainty.”

The Republican-led Legislature – including then House Speaker Marco Rubio – agreed with Gov. Charlie Crist to greatly expand the size of the fund back in 2007 as part of an effort to lower insurance rates. Two years later legislators started whittling the fund back down but Nicholson says more needs to be done.

“The Cat Fund needs to be right-sized,” Nicholson said. “It’s too much when you are expecting to depend on 10 billion or greater of debt.”

State Sen. Alan Hays, R-Umatilla, said he considered it “fraud” to force insurers to buy coverage from the fund if there is no guarantee the fund can pay for storm damages.

“We’re taking a tremendous gamble which I find unacceptable,” Hays said.

But any move by state lawmakers to change the hurricane fund could run into opposition from coastal lawmakers concerned about raising insurance rates during bad economic times.

“We need to go very slowly,” said State Sen. Mike Fasano, R-New Port Richey. “I have great concerns of the ramifications of what this will do to every property insurance policy holder in the state. We’re not just talking about homeowners. We’re talking about mobile home owners, condo owners and small business owners.”

The governor, however, agrees with Nicholson. He said he would prefer insurers to rely on other sources of help instead of utilizing the state-created hurricane fund.

“I like free markets, I believe free markets work,” Scott said. “I believe free markets are efficient so I would like to downsize the Cat Fund responsibly.”

Posted on Wed, Sep. 21, 2011

By GARY FINEOUT

Associated Press