The Legislature passed a long-awaited property insurance reform bill a week ago. Gov. Charlie Crist signed it last Thursday with expressions of enthusiasm.

Now, the whole state is trying to forecast the probable results from what's essentially first-aid to stop millions of Florida dollars from bleeding away in the form of homeowners insurance premiums that have doubled -- or worse -- in the aftermath of the hurricane seasons of 2004 and 2005.

Further insurance reforms will be on the agenda when the Legislature meets for its regular session in March. Although the bill passed Jan. 22 with only token opposition, legislators of both parties aren't overselling the reforms. Especially with a Republican-dominated Legislature, there appears to be a degree of consensus.

"Nobody wants the state of Florida to get into the private insurance market," said State Rep. Mike Grant, R-Port Charlotte. "However ... the private market is in turmoil, and it's unstable because of past hurricanes and the perceived threat of future hurricanes."

In the weeks leading up to taking office the first week of January, Crist essentially handed the Legislature marching orders that they were to gather in Tallahassee and not leave until they had come up with a bill everyone could live with.

Crist was evidently pleased with the results.

"I have a message for all Floridians -- help is on the way," Crist said when he and legislators gathered in the front yard of Port Charlotte retirees Stan and Joan Whitney for a ceremonial bill signing last Thursday afternoon.

With the governor's signature not a week old, Charlotte County's business community is still trying to figure out what the legislation means.

Local trade associations are calling special meetings of their officers and boards of directors in order to go over the new law item by item.

"I think there's going to be a lot of homework for Realtors, for builders, for business owners, and certainly for those in the insurance industry," said Alan Mitchell, the new president of the Punta Gorda-Port Charlotte-North Port Association of Realtors. "I hope that when we get to the end of understanding what happened, it turns out to be good for Florida."

The high cost of insurance is also playing a role in the slowdown of Florida's residential housing market, although how much is difficult to quantify, said Jon Bednerik, executive officer for the Charlotte-DeSoto Building Industry Association.

"People who are looking for a place in Florida are starting to consider not only the sale price but also the cost of living -- and that would include insurance, absolutely," Bednerik said.

Grant said that perhaps the hardest portions of the bill to understand were provisions relating to the reinsurance market. Essentially, this is insurance for insurers.

Some risks are predictable -- for example, the cost of fire insurance hasn't ballooned in the same way as windstorm coverage, mainly because insurers have actuarial tables that can predict how many of these mishaps will occur in a market area each year. These mishaps ordinarily affect only one structure at time.

Natural disasters that destroy or damage hundreds of buildings at once are much harder to predict. Insurers limit their risk by buying reinsurance from companies that specialize in such coverage.

Grant explained that insurers will usually buy several tiers of reinsurance, which would kick in at various levels of loss. Reinsurance for a truly rare catastrophe such as Hurricane Katrina should, in a normal market, be relatively cheap, because such events don't happen every year.

However, the consecutive bad hurricane years threw the reinsurance market into chaos. "We were told that in some instances it was costing $1.07 to purchase $1 worth of reinsurance," Grant said.

Under the new law, the state will be stepping in to provide reinsurance at reduced rates -- at least until the private market has a chance to catch its breath.

"We have tried to do that in a responsible way and to keep the private insurance companies involved as much as possible. And we hope that when the threat of this hurricane cycle that we're in comes to an end, we will have more private investment in the market," Grant said.

Look for the Legislature to discuss even more creative, market-based solutions when it reconvenes, Grant said.

"In the long run, the big picture is not 'How do you do insurance?' but 'How do you spread risk?'" Grant said. "It does not necessarily have to be through an insurance company and we will be exploring other alternatives as a first step." One example might be allowing banks to charge a higher interest rate in return for reducing their insurance requirements on a mortgage. This might appeal to some borrowers who can't afford high insurance premiums, while allowing banks another means of covering their risk in the event of a disaster.

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By BOB FLISS
Charlotte Business Editor

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