Echoing the criticism of their counterparts in the primary market, the Reinsurance Association of America is voicing concerns Florida's new property insurance law will eventually be costly to taxpayers.
The group said it sees the measure as a risky move.
Frank Nutter, president of the RAA, said "The Florida Legislature is taking a huge gamble" that Florida will collect enough revenue from discounted insurance premiums to avoid having to collect increased taxes make up for losses after a big storm loss.
The new law, signed yesterday by Republican Gov. Charlie Crist, allows primary insurers to purchase more reinsurance directly from the state's catastrophe fund at a lower price than they would get from a private reinsurer, provided those savings are passed directly to consumers.
However, insurance groups have noted should a major storm overwhelm the fund, the burden of providing for recovery claims would be put on the state and on policyholders forced to pay assessments to the Cat Fund.
Mr. Nutter said lawmakers essentially took a gamble that 2007 will mirror the placid hurricane season of 2006, charactering the law as a "pray now, pay later" measure.
"This new law replaces the system of financing insurance protection based on risk to which the insured is exposed with a regime that will cover losses with taxes and policyholder assessments," Mr. Nutter said.
"Legislators can change the law of the state, but they cannot change the laws of nature or the laws of economics. The wind will blow and cause billions of dollars of damage. Someone will have to pay for the resulting losses," he added.
The premium levels mandated in the new law, Mr. Nutter said, "fly in the face of sound risk management" and will not cover the losses inflicted during a storm-heavy season such as those occurring in 2004 and 2005.
According to the RAA, reinsurers paid roughly $36 billion of the losses during those two years, totaling 50 percent of the total losses incurred. The new law would put those costs on the state, Mr. Nutter noted, and likely would lead to a necessary tax increase, assessment or other out-of-pocket cost to consumers to cover them.
Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader
Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
- Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
