Foley pushes for insurance reform bills
By BOB FLISS
Business Editor Sun Herald
U.S. Rep. Mark Foley told local real estate professionals Thursday that insurance companies should be encouraged to set aside more of their money against future disasters.
One way Congress could promote this goal would be to pass legislation allowing insurers to create tax-sheltered disaster funds. So far, Foley said he's had limited success marketing this concept to fellow legislators, but he remains convinced the idea has merit.
"These would work almost like an IRA does for individuals," said Foley, a Republican from Palm Beach Gardens, who is running for his seventh term. He spoke at the Charlotte Harbor Yacht Club before members of the Punta Gorda-Port Charlotte-North Port Association of Realtors.
Two severe hurricane seasons in a row have exposed the flaws in the business model used by most insurers, Foley said.
"Competition is going to bring down prices," Foley said. "Citizens (Citizens Property Insurance Corp.) is proof that you can't try a one-size-fits all agency," he added, referring to the state-owned "insurer of last resort" that handles about a third of Florida homeowners policies, mainly older dwellings that can't get insured on the private market.
Contrary to the industry's public image of possessing inexhaustible riches, insurers generally operate one step ahead of the next round of disasters, Foley said. Their main source of revenue remains premiums, plus whatever they can make by investing this money, primarily in securities. Out of this revenue, they have to pay business expenses, settle claims and reward their stockholders with dividends.
Their safety net comes from buying reinsurance on the open market -- basically insurance for insurers. The current tight market in Florida is partly the result of primary insurers losing money through settling about $35 billion in claims over two years. But the pain was also spread to their reinsurers, who have either raised their rates or refused to write coverage. Without affordable reinsurance, primary insurers will either drop policies or raise their premiums.
A system of tax-exempt disaster accounts would allow insurance companies to become their own reinsurers, at least in part, Foley said
Foley added that he appreciates Gov. Jeb Bush's proposal for a special legislative session for insurance reform. However, he said that one reason why no date has been set is a great deal of preparation will be needed to establish an agenda. Foley added that Bush and reform-minded legislators appear to agree that any special session needs to be focused on practical solutions rather than finger-pointing at supposedly greedy insurance companies.