David Daniel, vice president of government affairs for the Florida Chamber of Commerce, said the bill had its genesis in the 2004 and 2005 hurricane seasons during which time Citizens created a $1.7 billion deficit. Lawmakers then withdrew $15 million from the state's general revenue fund and assessed an 2.5-percent premium surcharge on all state property insurance policyholders to offset the deficit. In addition, $800 million in deficit funding will be collected from policyholders over a 10-year period.

As part of the state's evolving role in the insurance market, lawmakers subsequently expanded Citizens' assessment base by including commercial property owners. Daniel said that in addition to placing what he described as another "tax," on owners, the legislature introduced an element of financial uncertainty that would hamper owners' abilities to plan for the future. He also noted that the assessments could come inopportunely, when some business owners may be scrambling to refurbish their own operations because of storm damage.

For those reasons, among others, Daniel believes that business owners would benefit from having another coverage option. "Some business owners would rather pay an adequate premium and not face the prospect of having to pay assessments," he said.

Many members of the business community and many residential homeowners take issue with the fact that the four billion policyholders residing in inland regions of the state essentially subsidize lower rates for the state's 1.3 billion coastal residents. It is a public policy question that has lingered in the legislature for years as lawmakers weigh the interests of different policyholders. When Governor Charlie Crist was elected on a platform calling for lower rates, which eventually manifested into a greater role for the government, he kept intact the previous policy of spreading the hurricane risk across the broadest segment of policyholders available. One way that Crist and lawmakers sought to lower rates was to expand Citizens' assessment base. In theory, this would translate into lower assessments while opening the door for private insurers to lower rates.

As a result, lawmakers added commercial property insurance policyholders — along with automobile policyholders — to Citizens' assessment base as part of the 2007 legislative reforms. This expanded the insurer's regular assessment base from $8.2 billion to $34 billion, and set the emergency assessment base at $37 billion. From Daniel's perspective, the changes actually hurt business owners, especially since lawmakers increased the possibility of a Citizens' deficit by freezing the insurer's rates at 2007 levels. "Examining rates opens the debate of why businesses are paying to subsidize everyone else's homeowners' premiums," he said.

Daniel also explained that the same argument applies to whether other lines of insurance — such as auto and umbrella coverage — should be on the hook to pay Citizens' assessments. "We don't shy away from having that dialogue," he said.

Assessments and Exposure

To what degree commercial property owners are liable to pay Citizens' deficits depends on whether Citizens or a private insurer issues the policy. It is also important to remember that the same policyholders are facing concurrent assessments to meet the financial obligations of the Cat Fund and FIGA.

Citizens' officials report that the insurer currently has around 1.3 million policyholders with a 100-year probable maximum loss of $23.9 billion. This figure includes $14.6 billion in the high-risk account; $6.7 billion in the personal lines account; and $2.6 billion in the commercial lines account. In large part, that exposure level would be covered by assessments. The insurer calculates that could result in a $1.935 billion assessment levied solely against Citizens' policyholders, a regular assessment of $3.8 billion, and an emergency assessment of $2.03 billion against all property and casualty policyholders.

Currently, Citizens has about 35,000 commercial non-residential policyholders in its wind-only high-risk account as well as 1,750 policies in its commercial lines account. Business owners covered through either account face an immediate 10 percent assessment if either account has a deficit. If that amount proves to be insufficient, then another 10 percent assessment can be levied when Citizens issues or renews a policy. If a deficit remains, then the assessment base expands to include all property and casualty policyholders, including commercial property owners covered by private insurers. The only lines of coverage excluded from the assessment base are workers' compensation, medical malpractice, and accident and health. That accounts for another 10 percent assessment, and it triggers a possible emergency assessment that could keep policyholders on the hook for years to pay off a multiple-year bond issue.

The legislation contemplated by lawmakers would significantly alter the Citizens' assessment method for all three of its accounts, including personal lines. If there is an assessment in any of the insurer's three accounts, then Citizens could levy a 10-percent premium surcharge on all of its policyholders, which would be collected when policies are either issued or renewed. If that fails to pay off a deficit, then a regular assessment of 8 percent could be charged across the board to all policyholders that currently fall into the assessment base. Last, if the insurer must issue bonds to pay off a deficit, then a multi-year emergency assessment could be charged against all policyholders at a rate of 10 percent of the insurer's premiums or 10 percent of the deficit, whichever is greater.

Setting a Precedent?

Daniel noted that the business community did oppose last year's property reform bill, which he referred to as a "gamble that paid off," since there were no hurricanes. However, he stated that the bill essentially penalized business owners by exposing them to assessments, and although the Chamber-backed bill reverses that policy, Daniel is quick to add the proposed legislation is not a magic bullet. Comparing the market to a large ship, he noted "it is going to take time to turn things around."

While many in the industry are sympathetic to the business community's position, they are wary of what it could mean for the property market overall. They are also aware they have little leverage to make changes to the bill, which is being supported by legislative heavyweights such as incoming Senate President Jeff Atwater (R-Palm Beach) and Senate Banking and Insurance Committee Chair Bill Posey (R-Rockledge), who is also running for Congress.

At issue is the effect such a change would have on the overall financial impact the state and private market have constructed to fund hurricane losses. The business community's position is that if business owners opt to buy non-assessable policies and pull out of the insurer's assessment base, then it would be offset by the decrease in the insurer's exposure. Experts note there is no way to actuarially judge that proposition, which leaves open whether an exodus of businesses to the private market under non-assessable policies would just increase the assessment burden on the remaining policyholders.

Jeff Grady, president of the Florida Association of Insurance Agents, said that although he understands where the business community is coming from, he is not convinced that carving out separate groups of policyholders is the appropriate course of action when it comes to spreading the risk of hurricane losses. "Why wouldn't all of the business owners decide to opt out?" he questioned. "But I don't see how you could do this without dramatically changing Citizens' funding, especially the dramatic effect it could have on its bonding capacity."