Citizens Depopulation…Too Little, Too Late!

In what may be the best example I can remember of “too little, too late”;  the Tampa Tribune endorsed the so called Citizens E&S depopulation bill on March 11th, the Monday immediately following the Friday night that lawmakers left Tallahassee without passing it.

The Tribune’s editorial accurately described the “depop” proposal as “…another much-needed tool, not only to shrink Citizens but to offer property owners more choices.”

What makes the Tribune’s account worthy of honorable mention, however, isn’t its belated publication but, its notable lack of false and misleading statements regarding the bill’s provisions.   Instead of listening only to trial lawyers or their fronting groups, somebody at the Tribune apparently read the bill, or its analysis, and formed an opinion markedly more insightful than those who did not.

To see one potential source of misinformation read Bill Newton’s response to my last blog. While ignoring the list of consumer protections I said were in the depop bill, he focuses on the harm caused to consumers, “IF” the E&S company were to become insolvent. Curious, I thought, since  his previous endorsement of the Cat Fund bill (Hb-833 & Sb-1372 by Hager & Alexander respectively) seemed to refute his newest opinion.

In fact, for an interesting exercise, read Newton’s well written endorsement of the Cat Fund bill and tell me if it even sounds like the same person who wrote the blog response above.

Meanwhile, here are two comments from his blog response that illustrate not only the inconsistencies in Newton’s commentaries, but…insights about Florida’s unique property market.

Newton said…

” I don’t think being “approved” by OIR is the same as being “regulated for solvency.”

This, of course, would be news to Commissioner McCarty. Not only is regulating for solvency his prime responsibility but, it’s an integral part of the “approval” process and is required by law.

But, forget that–the  depop  bill  upped the ante well above levels prescribed for admitted carriers. It required the  E&S carrier to maintain $50 million in surplus, not $15 million like “approved” admitted carriers.  It required an A- rating by AM Best, which means, among other things, the carrier must insure to a 1-in-250 year scenario.  It must also be able to cover “two” 1-in-100 year storms in the same season–far above admitted carriers, some of which may not even be up to one 100-year storm.

So, contrary to Newton’s assertion, the bill endorsed by the Tampa Tribune, definitely required an E&S takeout carrier to be…“regulated for solvency.”

Newton also said that… “It would be a mistake for consumers to rely more on ratings companies like AM Best than regulators.”

Really?

While there’s certainly no guarantee of solvency based on a carrier’s rating, (especially from some rating agencies), neither is there a guarantee from OIR approval.

Think about it. During a six year period without even one hurricane, Florida experienced a record number of insolvencies, despite OIR approval and, typically, an A rating from Demotech. During the same time,  how many E&S carriers went insolvent?  How many carriers (E&S or admitted) rated A- by AM Best failed? Did any of them have $50 million in surplus?

It’s for sure Florida’s rate review process is detailed and professional, but…what some fail to recognize is the impact Florida’s government pools may have on solvency regulation. Citizens, The Cat Fund and FIGA are mechanisms that defer present day premium adequacy in favor of long term assessments. They are the “enablers” that not only make premium suppression more likely but, in so doing, foster unhealthy surplus levels that may lead to a greater likelihood of insolvency.

If he really cared about the impact of insolvencies on consumers, instead of being concerned about the financial requirements for E&S takeouts from Citizens, Newton should be asking why the  superior requirements in the depop bill aren’t applied to all carriers!

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