First of three parts.

In next week's special session, Florida lawmakers are poised to pass some of the strongest pro-consumer insurance legislation that perhaps has ever been seen in Tallahassee.

If the legislation becomes law - which seems likely at this point - it will be harder for property insurance companies to raise their rates despite the state's recent history of hurricanes. The overnight transformation of an anti-regulation Republican Legislature into a Ralph Naderesque entity has left insurance lobbyists stunned.

"It's hysteria right now," one complained.

Critics continue to warn that while lower rates may be the immediate result of the state's expanded role in the insurance market, state taxpayers, homeowners and businesses will face a monumental bill if Florida is hit by a mega-storm. They also argue that measures deemed "pro-consumer" could hurt Floridians in the end if they drive more private insurance companies out of the market.

But lawmakers - with the strong backing of Gov. Charlie Crist - have made the calculation that the risk and heavier regulation are worth the effort if it brings down property insurance rates.

Sen. Steve Geller, D-Hallandale Beach, who has come up with an innovative plan to revive the insurance market by shielding the companies from the financial impact of a Katrina-type hurricane, acknowledges the risk. But he also argues that Florida would face huge problems under the existing system if a mega-storm hits the state.

"Either way, we'd be in trouble," he said.

But the legislation will offer "substantial rate reduction now," Geller said. And he said lawmakers will work to try to minimize the state's long-term exposure by promoting more programs where Floridians can "harden" their homes and businesses against storm damage and by urging the federal government to come up with a national catastrophe fund.

As lawmakers head into a weeklong special session that begins Tuesday, they have a series of measures that will expand the role of the state-run Citizens Property Insurance Corp., while at the same time rolling back steep rate increases for Citizens that were the result of an insurance bill passed last year by the Legislature.

Business lobbyists warn that the continued growth of Citizens - which has 1.3 million policies largely in the coastal counties - puts private policyholders and the state at risk if the government fund runs into the red during a heavy hurricane season. That happened in 2004-05, when Citizens ran up a $2 billion-plus deficit that had to be paid off by assessments on Floridians with private insurance as well as a large financial bailout by the state.

Capping rates for Citizens only helps about a fourth of Florida's homeowners with property insurance. Lawmakers will help others by expanding the role of the existing state Hurricane Catastrophe Fund, which provides back-up insurance to private insurers. Allowing private insurers more access to that cheaper reinsurance will drive down rates by about 25 percent, House leaders estimate.

The potential downside is that the more the "CAT" fund is tapped, it will result in more assessments on insurance policyholders - including auto and other lines - to pay off the fund's bonds.

The Senate, while agreeing with the House on the expansion of the state CAT fund, takes the idea further by also offering to impose a limit of about $24 billion on any damages insurance companies would pay if a mega-hurricane hit the state. Senators argue the odds of such a storm are statistically remote, saying the cap would help revive the market while driving down rates by roughly 33 to 40 percent.

"They're afraid of the Big One," Senate Banking and Insurance Chairman Bill Posey, R-Rockledge, said of the insurance companies. "This basically removes the excuse."

Taxpayers left on the hook?

But the risk is if the state is hit by a $50 billion storm or season, state taxpayers could be on the hook for $25 billion or more.

In addition to the Citizens and CAT fund issues, Crist and legislative leaders are backing other far-reaching property insurance reforms.

They would give more power to the Office of Public Counsel to challenge insurance rate increases. They would make insurance company executives sign legal oaths certifying the truth of their financial statements. They would prohibit the cancellation of policies during hurricane season. They would force insurance companies to defend their rate hikes in court proceedings rather than using an existing arbitration panel, which critics say is too industry friendly.

The scope of the changes is staggering considering many of these proposals have been pushed for years by groups like the Florida trial lawyers but have found little favor in a Republican Legislature. Now, many appear to have a good chance of passage in the special session.

"These are the most sweeping, pro-consumer insurance reforms that I've seen," said Paul Jess, who has lobbied for nearly two decades for the state's trial lawyers. "It's very clear to me that the Legislature - led by our new governor - is coming around to the idea that the only way to really effectuate insurance reform is to go directly at it."

Most give credit to Crist for providing the momentum for the property insurance overhaul.

The Republican governor has personally endorsed some of the proposals most heavily opposed by the industry, including a provision that prevents property insurers from claiming "excess profits." He also wants to prohibit the creation of Florida-only insurance subsidiaries and would require insurance companies that sell property insurance in other states - but not Florida - to provide coverage in the state if they are selling auto insurance here.

The Legislature's sudden embrace of a get-tough attitude toward property insurers has left the industry's lobbyists scrambling for support as the special session looms.

"I'm optimistic that some cooler heads are going to prevail here at some point because it's hysteria right now," said Mark Delegal, a lobbyist for State Farm, the state's largest property insurance company.

But the lobbyists are having a tough time making their case that the industry is not to blame for the current crisis.

"We're all in this together," Delegal said. "Nobody's bad here - except the hurricanes."

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By Lloyd Dunkelberger
Ledger Tallahassee Bureau

© 2007 The Ledger