Contact the Fort Lauderdale Police Department�s Community Support Division (CSD) at (954) 828-6400 and prepare to make available the following verifyable identification that you reside or work east of the Intracoastal Waterway (ICW):

• Light bill
• Drivers License
• Water bill
• Tax bill
• Proof of employment
• or similar verifyable identification

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Florida CFO TOM GALLAGHER

Before they can do this, they must plead their case before Director Kevin M. McCarty�s Office of Insurance Regulation. They must convince Florida�s Chief Financial Officer and insurance czar, Tom Gallagher, that they either underestimated their risk or that the meteorological environment in the state has hence deteriorated. Sam Miller, executive vice president for the Florida Insurance Council (an insurance industry trade association), painted several scenarios that carriers may present to Mr. Gallagher. Addressing a possible statewide or regional impact, he said, �If there is going to be significant rate increases on a widespread basis, it will be because the companies can demonstrate to the Office of Insurance Regulation that based on their experiences this year, the rates aren�t quite right. Companies could also reassess what they charge in certain areas, such as southwest and central Florida, and that could drive up prices there.� While acknowledging that insurers will take this opportunity to test Tallahassee�s receptivity to rate hikes, Miller predicted, �We don�t expect major rate increases, major non-renewals and the sort of dislocation or chaos that we saw after Hurricane Andrew.�

Dr. Robert P. Hartwig

Chief economist Dr. Robert P. Hartwig of the nonprofit Insurance Information Institute also addressed the insurance industry�s intentions in view of the season�s catastrophes, �Certainly, events of this magnitude put upward pressure on rates.� He agrees with Miller that despite the $20 billion cost of the 2004 season (so far), the insurance industry should sidestep the calamity they suffered after Hurricane Andrew in 1992. Hartwig recalled, �Already, at this point in 1992, you would have heard insurers basically having placed permanent moratoriums on writing new policies and talking about getting out of the state.� Woefully unprepared for Hurricane Andrew, the $22.9 billion (in today�s dollars) juggernaut forced 11 insurers into insolvency and sent 38 others racing to escape the State of Florida - refusing to write policies even for longtime customers. State officials, Insurance Industry watchdogs and legislators are confident that the current season�s events, while threatening to escalate rates, will not portend an industry-wide bale-out of carriers. This somewhat optimistic outlook is credited primarily to the insurance reforms and adjustments instituted by the State of Florida after the Hurricane Andrew debacle.

In response to the Hurricane Andrew wake-up call, the State of Florida reconstructed insurance policy to better protect the insurance industry from lethal storm losses and the industry developed new techniques to survive the erratic risk of doing business here. Some insurers (i.e. USAA) experimented with insurance securitization, where catastrophe risks are shared in capital markets rather than in the reinsurance markets. Others constructed �financial firewalls� around their Florida businesses to protect the National or International parent in the event that the Florida subsidiary went belly-up. Allstate, for instance, created �Allstate Floridian� to magically disappear if declared insolvent, protecting the otherwise vulnerable parent from exposure. State Farm developed �State Farm Florida� under similar auspices.

In 1993, the State created the Florida Hurricane Catastrophe Fund, a risk pool which provides catastrophe reinsurance for companies writing homeowners insurance policies in Florida. The Fund will pay 90% of Allstate�s losses from Hurricane Charley in excess of $305 million, limiting their hit to $425 million as opposed to the $2.5 billion (1992 dollars) shellacking they took for Andrew. State Farm is expected to pay out $200 million for Charley-related losses, compared with $3.7 billion for comparable losses from Andrew. Other companies such as Nationwide, St. Paul Travelers, CNA, The Hartford, etc. are all expected to land on their feet because of the Fund.

When government price regulations depressed property insurance rates below their actual costs, insurers began to �cherry pick� customers, covering only low-risk applicants while refusing high-risk properties. In 2002, the Florida Legislature passed a law that combined the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA) and the Florida Windstorm Underwriting Association (FWUA). This resulted in the creation of Citizens Property Insurance Corp. (Citizens) to serve the needs of homeowners in high-risk areas and others who cannot find coverage in the open, private insurance market. A serendipitous success story, this state-run insurer of last resort currently protects 800,000 coastal properties rejected by private insurers for full coverage.

Insurers were also permitted to treat clients as partners, requiring deductibles to be a percentage of claims instead of the fixed amount charged before Hurricane Andrew. Some insurers are getting between 2-5 % of windstorm losses, as compared to the less than 1% typical for fire damage. This formula forces consumers to pay a higher percentage of the claims than the pre-Andrew model in which the deductible was a flat amount.

These measures by the State and the Industry have cushioned insurers from the hurricane-borne �capital shocks� that usually precede threatened rate increases. While the recent hurricane slugfest is a challenge to carriers, the damages to date are quite manageable. Referring to the positive environment Florida created for Insurers in the face of catastrophes, Florida CFO Tom Gallagher stated that carriers have told him, �If these kinds of things have to happen, it�s a good thing they happened in Florida.� Office of Insurance Regulation spokesman Bob Lotane indicated that they�re monitoring a �small handful� of companies for potential solvency issues - companies that were under scrutiny before the season. If the storms exacerbated the problems of this small shaky group, the State could be required to place them under supervision and if unsuccessful, under rehabilitation (receivership). If stability and solvency still can�t be achieved, assets would be liquidated to pay claims. Outstanding claims not covered by the company�s assets would be paid by the Florida Insurance Guaranty Association - which is funded by the state�s insurance companies. Insurance Information Institute�s Robert Hartwig discounts any prospect of danger for Florida�s major carriers such as State Farm Florida or Allstate Floridian (no.s 1 and 2).

Ironically, the State has now turned its concern from the well-shielded insurers to property owners and taxpayers. The post-Andrew insurance reforms that revived the deflated Florida insurance market are being re-examined in view of certain long standing inequities that the season�s storms have brought to light. Legislators are preparing for a special session Governor Jeb Bush may call in December to address hurricane-related issues. Property owners saddled with double or triple deductibles, one for each event, have elicited the support of Florida CFO Tom Gallagher. In response, his stated intention is to abolish this �double deductible,� calling it �fundamentally unfair.�

State Representative Randy Johnson

Florida House Finance and Tax Committee Chair Randy Johnson (R-Celebration) remarked, �It was just a matter of time for these back-to-back disasters to happen and people would have these claims and deductibles they can�t afford. Now we see the error of our ways.� Johnson proposes capping the deductibles homeowners have to pay over a 12-month period, as with a healthcare policy. By way of contribution to the Governor�s special session, Chairman J. Anthony Villamil of the Governor�s Council Of Economic Advisors intends to recommend some type of assistance to help homeowners and small-business owners pay deductible losses.

Industry spokespersons caution against dismantling the reforms that rescued the Florida market after 1992. Property Casualty Insurers Association of America lobbyist William H. Stander threatened, �I don�t think there�s any doubt that if you restrict the use of deductibles, premiums will go up.� Former House Insurance Committee Chair John Cosgrove harbors concerns about the extent to which legislators might pressure the industry, possibly forcing additional carriers out of the shaky windstorm business. To mollify Industry concerns, he recommends that insurers receive additional benefits from the Florida Hurricane Catastrophe Fund. The reinsurance-style relief offered by the Cat Fund is much cheaper than anything insurers could buy in the private market. Michael Colodny, Citizens Property Insurance Corp.�s general counsel, said some insurers may in fact stop offering windstorm coverage, but not enough to significantly impact consumer�s ability to buy coverage. As the windstorm insurer of last resort, state-run Citizens is the safety net in which the victims of a tightening market would find themselves.

Florida Senator Ron Klein

Legislators are leery about the Insurance Industry�s intentions and motives. Delray Beach Senator Ron Klein, a longtime insurance industry critic, anticipates a post-Andrew style industry reaction. He warns that insurers will seek to take advantage of this opportunity to further hike rates and decline renewal for thousands of policies, not only for coastal property owners, but across the state. Klein predicted, �They are going to take the position that all of Florida is a high-probability risk.� Legislators know that the case for higher rates goes deeper than the reaction to recent events; insurers were maneuvering for an increase well before the season started.

Susanne Murphy, Citizens� corporate counsel, explained that the Florida Legislature set these increases in motion in 2003. The Legislature directed Citizens to come up with a way of calculating rates following several years of huge windstorm rate hikes. In response, Citizens pegged wind-only policy rates to the highest of the average wind rates charged by the state�s top 20 insurers. In addition to varying from place to place, the new rules don�t give the same generous credits to policyholders who have installed impact windows, roof straps or other measures to increase protection from hurricanes. These new rules apply to policies written or renewed after July 1, 2004, well before the effects of Charley, Frances, Ivan or Jeanne drew the concern of policy holders to potential premium increases.

A new law, Florida Statute 718.111, will have a unique impact on Condo owners. There has always been a gray area between the Association�s windstorm coverage and the personal property insurance responsibilities of the unit owner. After January 1, 2004, everything from the paint on the walls and ceiling to the tiles on the floor is strictly the insurance responsibility of the condo owner, not the Association. Electrical fixtures, appliances, air conditioners, heaters, water heaters, water filters, kitchen cabinets and countertops, light fixtures and even the ceiling or wall paint damaged by storm-related infiltration - if its not in your personal property policy, you aren�t covered.

Because windstorm coverage is an �as is� proposition due to the absence of competition between insurers, the only option available to Associations to lower their premiums is to increase their deductible. Some Associations have opted for hurricane deductibles of $100,000. This has opened new product lines for insurance companies. Some Associations will have to address damages that amount to less than their $100,000 deductible through assessments. On some personal property policies, there�s now a loss-assessment provision designed to cover the cost of the repairs or to pay the association�s deductible. The new law has opened other liability gaps between the Association and the unit owner. For example, the association may not have to cover a repair of drywall inside a unit damaged due to a leak from association-owned plumbing inside the wall. While the in-wall Association plumbing is clearly not personal property, Insurers are offering �extended protection� provisions to fill the newly opened �coverage gaps�.

One of the few advantages afforded to Condo owners under the new law is the method of determining loss payment. Windstorm coverage for personal property in condo units used to be what�s termed �cash-value coverage�. In settlement of a claim, you received the depreciated value of the item lost, subject to your deductible. This is actually a regressive penalty on those who properly maintain and meticulously service appliances, fixtures, etc. A well maintained 8-year old big screen TV would invoke a payout large enough to buy a new 13 inch Black and White replacement set when based on cash-value coverage. On Citizens windstorm policies that were new or renewed after July 1, 2004, the unit owner can buy - for a higher premium - replacement cost coverage. Replacement cost policies were common before Andrew. As part of the industry�s reformation after 1992, insurers switched to the less costly cash-value coverage. The return of replacement cost coverage, even as an added expense, is more equitable for the insured. Despite the depreciated value of covered damages, the insurance payout would be determined strictly by the cost of a comparable substitute, indexed for inflation.

The balancing act that State and local officials will have to perform during the next legislative session promises to be an interesting exercise of enlightened self-interest. Public concern about the season�s insurance impacts has sent bureaucrats scrambling from city hall to Tallahassee. Insurance lobbyists are gearing up for both overt and �under the radar� attacks on premiums, regionally and statewide. Carriers may threaten to abandon certain Florida insurance markets as part of their effort to force the Office of Insurance Regulation to float rates. If that occurs, the State might have to get deeper into the insurance business, expanding the �Citizens� concept - both in scope and to other threatened insurance areas. Conversely, the State is questioning the need and equity of �double deductibles� and the credibility of the Industry�s claim to deserving higher rates and a bigger taste of the �Cat Fund�.

Ironically, the unanticipated success of Florida�s Hurricane Cat Fund and �Citizens� has turned some heads in Washington. One of the objections to FEMA is the lack of any incentive to control risk on the part of its beneficiaries. Congress is looking at a national model patterned on the Florida template. A national Cat Fund could establish safety standards as prerequisite to being eligible for benefits - cutting the risk and, in turn, the cost. While governmental attempts at competing with private industry are usually pathetic, Florida�s insurance entries seem to be exemplary. Capitol Hill is considering � if it works here, why not everywhere?

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GOVERNOR JEB BUSH

December 15, 2004 - The December 13, 2004 special session of the Florida Legislature called by Governor Bush to tackle the �double deductible� inequity framed by the 4-hurricane season has borne fruit. Senate Bill S10-A, sponsored by Senators Garcia and Lynn and House Bill H9-A by Representatives Ross, Barreiro, Baxley, Farkas, Harrell, Mayfield and Murzin provides for the Florida Department of Financial Services to reimburse policyholders of residential property insurance for multiple deductibles applied by insurers for two or more hurricanes.

Although the original bills were limited to individual homeowners, intense pressure applied by the Condominium Association Legislative Lobby (CALL) opened the door to Condominium inclusion. The amount of reimbursement to condominium associations will vary depending on each association�s hurricane deductible under their policy and the amount each association paid for hurricane deductibles. While the maximum reimbursement to condominium associations is limited to $3,000 per condominium unit, the State is earmarking $75 million to fund the plan.

Special Session in Tallahassee

Filed on December 10^th and introduced on December 13^th, S10-A was referred to the Senate Banking and Insurance and General Government Appropriations Committees for review. It sailed through Banking and Insurance by a vote of 10 YEAS vs. 0 NAYS on December 14^th. The next day it passed General Government Appropriations by a vote of 4 YEAS vs. 0 NAYS. It was placed on the Special Order Calendar for consideration on December 16^th and then "laid on the table" after its sister House Bill H9-A was substituted for it. The House Bill H9-A was also filed on December 10^th and introduced on December 13^th. The bill was referred to the House Insurance Committee, Fiscal Council and Commerce Council. It immediately passed the House Insurance Committee by a 16 YEAS vs. 1 NAY vote. On the 14^th, it passed the Fiscal Council by a vote of 20 YEAS vs. 1 NAY. Later that day, it zipped through the Commerce Council by a 10 YEAS vs. 0 NAYS unanimous vote. It was added to the third reading calendar the next day. On December 16^th, the bill passed a vote in the House by 115 YEAS vs. 2 NAYS (3 not voting) and the Senate by 38 YEAS vs. 1 NAY (1 Not Voting) and ordered enrolled. It was signed by the officers on December 21^st before being presented to and signed by the Governor.

To read the text of the enrolled version of the new law, Click Here!

The 2004 hurricane season has been particularly destructive for Florida, with Hurricanes Charley, Frances, Ivan, and Jeanne causing extensive damage throughout the state. According to the Office of Insurance Regulation (OIR), as of December 2, 2004, insurance companies have reported over 1.5 million property insurance claims for all four hurricanes and $10.5 billion in total claims payments. The companies estimate that the total expected gross property loss will reach $20.8 billion.

Florida CFO TOM GALLAGHER

Insurance companies and the State spent the last four months jockeying for position in an anticipated clash over the fiscal impacts of the catastrophic season. Florida Chief Financial Officer Tom Gallagher publicly disparaged Florida insurance policy for permitting insurance carriers to charge several deductibles for damages incurred by serial weather events. In turn, Allstate Insurance stopped writing new homeowners� policies in 17 Florida counties brutalized by the weather. In counties that were not hit as hard, it is only writing renters� policies and homeowners' policies minus wind coverage. The special session is the State�s first volley in what appears to be maneuvering on both sides to protect themselves from overreaction by the other.

As such, the legislation will fulfill a commitment that Mr. Gallagher made during the hurricane season to abolish the multiple deductible, characterizing it as �fundamentally unfair�. This proactive legislation serves as a useful plank from which Mr. Gallagher can launch a 2006 gubernatorial campaign. The field will likely include, among others, fellow cabinet member and Florida Attorney General Charlie Crist.

Residential hurricane deductibles are typically 2 percent of policy limits and may generally be as high as 5 percent of policy limits, or even higher for certain policies. However, $500 hurricane deductibles are still prevalent for homes and mobile homes valued under $100,000. The deductible applies to each hurricane, which can result in significant out-of-pocket expense to many policyholders. In many cases of multiple hurricane claims, according to a survey of insurers by OIR, the insurer waived application of multiple deductibles. Sourcing the survey results and attempting to account for missing information, the Legislative committee staff estimated that about 36,000 policies had multiple deductibles applied and that the cost to policyholders of second and subsequent deductibles may total about $70 million. While this estimate apparently includes only policies for which insurers paid two or more claims and deducted the full amount of the deductible, it does not include �no payment� claims below the deductible or claims not reported to the insurer.

The bills require the Department of Financial Services to reimburse residential and commercial policyholders for the financial loss due to the insurer applying multiple hurricane deductibles under the following specified conditions and limitations:

• A policyholder must have incurred damage in excess of the full amount of one deductible (which may be met by adding two or more claims below the deductible).

• Maximum reimbursement of $10,000 per policy, or $20,000 per policy if damaged by three or more hurricanes.

• Maximum reimbursement for a condominium association policy in amount up to $3,000 per unit.

• $100 deductible applied to the reimbursement.

• Applications for reimbursement must be filed with the department by March 1, 2005, including such information as the department requires to verify the claim, including documentation from the insurer.

• Department of Financial Services may investigate and adjust reimbursement claims, and may contract for this service.

• Applications for reimbursement are subject to insurance fraud penalties.

• Insurers must mail notice of the reimbursement procedures to policyholders who had more than one hurricane deductible applied.

• Total amount paid to all policyholders is limited to the amount appropriated. Department of Financial Services must first pay policyholders who received claims payments for two or more hurricanes for which each payment was reduced by the full amount of the deductible. All other eligible policyholders would be paid on a pro rata basis if funding is inadequate to pay everyone in full.

• Up to $150 million is transferred from the Florida Hurricane Catastrophe Fund (FHCF) to the department�s Insurance Regulatory Trust Fund and appropriated for reimbursement. In order to maintain actuarially indicated premiums, the State Board of Administration must increase future premiums to insurers for FHCF coverage over 5-year period.

The bill also requires residential property insurers to apply future hurricane deductibles on an annual basis to all hurricanes that occur during the calendar year. The annual deductible applies to losses that are covered under one or more policies issued by the same insurer or an insurer in the same insurer group. However, insurers may apply the �other perils� deductible, or the remaining amount of the hurricane deductible, whichever is greater, to subsequent hurricane losses. Insurers may require policyholders to report claims below their deductible and to maintain records or receipts in order to apply the loss to a subsequent hurricane. If a policyholder has a hurricane loss and then changes the hurricane deductible, the highest deductible applies. These requirements apply to policies issued or renewed on or after May 1, 2005.

For condominium unit owner policies (which generally cover only the contents, wall and floor coverings, and appliances), most policies (54.7 percent) have a deductible of $500 or less, and most of the rest (40.7 percent) have 2 percent deductible policies. Less than 1 percent of condominium unit owners have a percentage deductible greater than 2 percent (see table below). While 54.7% of the Condo owners are exposed to �multiple deductible jeopardy� of $1000 to $2000 (2 to 4 deductibles @ $500 each), the 40.7% that carry 2% deductibles on average properties of $103,916 have exposures of $4156.64 to $8313.28. The real pain is felt by the 0.3% of Condo policy holders that carry 15% or more on properties averaging $438,058. Their double through quadruple deductible exposure is from $131,417 to $262,835 and higher! While the $3000 maximum reimbursement should �make whole� more than half the Condo policy holders victimized by the deductible inequity, the rest could be significantly assisted by these bills. Of course, the $3000 reimbursement will only marginally buffer the one half of one percent of policy holders that have �special� deductible requirements of 15% or higher.

On January 6^th, CFO Gallagher announced that the �Multiple Deductible Reimbursement Program� assistance be paid first to Floridians who paid two or more full deductibles, followed by those who paid part of a second or third deductible. Gallagher explained, �The program to provide these storm victims financial relief is now up and running and applications to eligible individuals will soon arrive in thousands of mailboxes across the state. I encourage those who are eligible to submit their applications as soon as possible so that we can get them the financial assistance they need to start rebuilding. Policyholders will receive an application from their insurance company by mail along with information needed to complete the application.� He advised that if the application packet does not arrive by January 27, 2005, then the policyholder should call the Department of Financial Services at 1-800-22 STORM for guidance.

Deductible Amount # of Condo Units % of Condo Units Average Insured Value         $1 to $500 381,339 54.7%   $74,763  $501 to $1,500   24,190  3.5% $103,349 $1,501 to $2,500     1,801   0.3%  $147,761 2% 283,776 40.7% $103,916 5%     3,285   0.5%  $306,922 15% or greater     2,306   0.3%  $438,058 Other deductibles     1,025   0.2%    Total 697,722 100%

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