Top Insurance Stories in 2007 in Southeast

High heat, changing winds put reputations on the line.

1. Florida’s gamble
“It’s all about rates,” maintained Sam Miller, of the industry’s Florida Insurance Council. Florida lawmakers in January passed controversial legislation they hoped would lower Floridians’ skyrocketing property insurance rates. Gov. Charlie Crist, who represented a stark departure from the approach of his predecessor on insurance, couldn’t wait to sign it. It included a scheme for making about $12 billion of lower cost reinsurance available to insurers through the state’s hurricane catastrophe fund, in hopes those savings would be passed along to consumers. It also froze the rates of the state-backed Citizens Property Insurance, which made it easier for this insurer of last resort to compete with private insurers. Politicians promised property owners as much as 24 percent savings. The actual savings for homeowners have been lower than that by about 10 points on average but not for lack of cajoling by Crist and scrutiny of required insurance carrier rate filings by Insurance Commissioner Kevin McCarty and his team. Small businesses have reportedly enjoyed bigger savings. Private insurers were unhappy about being pressured by state regulators to cut their rates and about having to compete with the low cost Citizens.

By expanding the state fund, Florida exposed itself to potentially billions of dollars in liability in the event a big storm season like the one that cost Florida $36 billion in insured damage in 2004 and 2005 hit again. “We’re gambling,” acknowledged Rep. Ron Reagan, R-Bradenton, at the time the measure passed. For 2007 anyway, Florida beat the odds. “It’s our first successful faith-based initiative,” quipped House Democratic leader Dan Gelber.

2. Scruggs disbands
The next time famed attorney Richard Scruggs appears in court it may be to protect his own reputation rather than to question that of an insurance company. He has had a forum to bash insurers for two years but Scruggs has now removed himself from the law consortium he formed to represent claimants after Hurricane Katrina crashed into the U.S. Gulf Coast in 2005.

Prior to Katrina, Scruggs was known as the lawyer who took on the tobacco industry – and won. Hollywood even made a movie — “The Insider,” starring Al Pacino and Russell Crowe — based on his high profile multibillion-dollar settlement with tobacco companies in the mid-1990s.

Since 2005, Scruggs’ name has become synonymous with Katrina litigation. Immediately after the most destructive hurricane season in U.S. history, Scruggs assembled a group of his colleagues including his son Zach to challenge insurers that had begun denying Katrina claims. The lawyers began a crusade against several large insurance companies and orchestrated class action suits for thousands of storm victims. Several court decisions have gone the insurers’ way but in the court of public opinion, Scruggs has done a lot of damage to the industry. He says his group has helped more than 900 families resolve their claims.

Now Scruggs is facing several serious charges including that he defied a court order. In addition, he is facing allegations of conspiracy to bribe a judge. While insurers may not have Scruggs to fear any longer, the fight over Katrina claims is not over. Attorneys involved in Katrina cases have regrouped without him as the Katrina Litigation Group.

3. Tornadoes take their toll
While hurricanes stayed away, tornadoes did not. Powerful tornados killed at least 20 people and left a swath of central Florida in shambles in early February. It was the second-deadliest tornado in Florida history. Citizens Property Insurance Corp. paid out more than $520,000 in claims. Tornadoes also took their toll in lives and property in 13 counties in Alabama in March. There were 17 confirmed deaths. Enterprise High School was destroyed. March also came in like a lion in Georgia where storms ripped through southwest and central counties and caused $210 million in insured losses, making it the state’s worst disaster in that category. In the fall, tornadoes struck again in Eustis, Fla. and in Pensacola. In November, it was Tennessee’s turn. An apparent tornado touched down west of Chattanooga, damaging buildings and causing minor injuries to at least nine people, including three children.

4. Pool politics
Mississippi and South Carolina in particular grappled with coastal woes by working to make insurance from their state’s wind pools more accessible without having these insurers of last resort displace willing private insurers.

South Carolina struck a balance by granting some pool rate increases, raising deductibles, extending the cancellation notice period and opening the pool to some new counties. At the same time, it was granting tax breaks for insurers for writing on the coasts and for property owners for making homes more hurricane resistant. Another provision allowed homeowners to put money into tax-deductible hurricane savings accounts.

Since 2005 and Katrina, rates charged by Mississippi’s wind pool have jumped 268 percent for businesses and 90 percent for homeowners. Lawmakers who saw these costs as stifling economic recovery looked for ways to provide some rate relief. In March, they agreed upon a plan to use $20 million a year for four years in premium taxes on policies statewide to help lower premiums for property owners in high-risk areas who are insured by the state’s wind pool. The plan includes tax incentives to encourage insurers to write more coastal policies. The state is also using $30 million in federal funds to help pay for the rate relief. Even with the public funds, the wind pool raised rates by 142 percent— but that was about 100 percent lower than originally recommended.

5. S.C. sofa store fire
In June, fire swept through a Sofa Super Store furniture warehouse in Charleston, S.C., collapsing the building’s roof and claiming the lives of nine firefighters in the nation’s single worst loss of firefighters since the 2001 terror attacks at the World Trade Center. Federal investigators said that the blaze started on a loading dock area that housed a trash bin and was used to store old furniture. Employees on their cigarette breaks also frequented it. Safety regulators fined the Charleston Fire Department and a furniture store for violating safety standards in the blaze. The owner of the furniture store said later he wished he had put sprinklers in the building but that they were not required when he built the building in 1992. The families of nine firefighters killed were set to receive $700,000 each in donations and workers’ compensation payments. Relatives could also receive a federal death benefit that could put compensation over $1 million.

6. Change in direction
George Dale faltered in his bid for an ninth term as Mississippi insurance commissioner. Dale had run as a Democrat eight times in his political career. But this year to his frustration, he ran into resistance from Democrats who questioned his party loyalty so he ran as an Independent. Gary Anderson, a former state fiscal officer from Jackson, ran for the Democratic nomination and beat Dale in the primary by a slight 51 percent to 49 percent margin.
Anderson ended up losing to Republican state Sen. Mike Chaney in the final election. Chaney said helping to make affordable insurance available to continue the rebuilding the Gulf Coast was his top concern.

Mississippi was not the only state where the regulatory leadership changed. South Carolina Gov. Mark Sanford named Senator Scott Richardson as his insurance director, replacing Eleanor Kitzman. Richardson was elected to the South Carolina Senate in 2000, and previously served in the S.C. House from 1993 through 1996. Richardson has worked in insurance, and real estate. In the Senate, he served on the Finance Committee and the Banking and Insurance Committee.

Richardson’s first big assignment was to fix the coastal insurance problem that had seen thousands of coastal homeowners lose their property insurance since Hurricane Katrina. It was something Richardson came to know firsthand as within weeks of his appointment, his own insurance on his Hilton Head Island home was cancelled. “I guess it just proves nobody’s immune. If I’m not immune, then nobody is. I might be in the wind pool before you know it. I get to try a little of my own medicine,” Richardson said.

7. Drought conditions
Throughout the year, states from North Carolina to Florida faced drought conditions that mostly affected farmers and firefighters, not insurers. But given the California wildfire experience, the insurance industry watched closely as the fire danger was raised in the Southeast. The exceptionally dry conditions mean almost anything could start a fire — a dropped match, downed power lines, a lawn mower’s sparks.

A wildfire that raced through the Okefenokee Swamp in southeast Georgia and into Florida was sparked by lightning. Wildfires this spring were the largest in Georgia’s history. At one point, the state counted 41 wildfires covering 267,136 acres. In a normal year, Tennessee will have 2,800 blazes which will consume about 30,000 acres. But in 2007, fires burned 41,249 acres statewide. Wildfires in North Carolina’s Pisgah National Forest burned for more than a week. In a remote area of Sumter County, Alabama, a wildfire apparently intentionally set scorched more than 700 acres. In South Carolina, since July 1, the number of wildfires and the acreage burned is more than double that of a typical year. Officials say much of the reason is the ongoing drought.

Wildfires in the Southeast have not caused lots of injuries or threatened homes, although there have been some evacuations. The costs have been largely borne by government firefighting agencies. But experts fear that continued dry conditions combined with suburban growth and changes in land-use patterns could change that. “Every year the fire season is longer and worse than the year before, and we’re seeing that again this year,” said Steven Kline, director, the National Association of State Foresters.

8. West Virginia privatization
The move to privatize the state’s workers’ compensation fund and rebrand it as BrickStreet Mutual has received mostly positive reviews, even from injured workers and their attorneys. The next phase in the privatization plan is supposed to come on July 1, when other insurers can enter the market. West Virginia officials have been working to get more private insurers interested in competing with BrickStreet. Insurance Commissioner Jane Cline has said that more than 40 insurers have expressed interest. But Cline and some of the insurers-in-waiting are worried about another bit of competition— from state legislators who realized that they had exempted workers’ compensation rules from their oversight when BrickStreet was spun off and now want to reestablish some control. Returning to that type of oversight, Cline and Gov. Joseph Manchin fear, could discourage the private market the state now wants to encourage. Meanwhile BrickStreet prepared for competition.

9. Florida PIP
Florida drivers were given a short recess from having to buy their own personal injury protection coverage as the state let its no-fault car insurance law expire on Oct. 1. But lawmakers then stepped in and decided to restart the law beginning Jan. 1. The debate over whether to renew the PIP requirement focused attention on some of its shortcomings such as the number of fake crashes and fake injuries that are submitted as PIP claims. Due to the fraud problem, some insurance companies lobbied to kill no-fault. But hospitals and health care providers argued that without mandatory PIP lots of people wouldn’t have anyone to pay for their health care if they were in an accident. That means the hospitals would get stuck with the bill. They pushed for the system to be restored and prevailed. The legislation does, however, include measures backers hope will reduce fraud.

10. Comp loss
In 2006, South Carolina’s workers’ compensation premiums grew more than 18 percent and the state ranked second in the nation since 2000 in terms of how quickly rates have increased. So in 2007, South Carolina enacted some workers compensation reforms. Legislation shuttered the second injury fund, closed loopholes opened by various court rulings and streamlined the appellate process. While most special interest were pleased, insurers found it somewhat disappointing because the new law did not go far enough in curbing costs by requiring that injured worker awards be based on objective standards. Gov. Mark Sanford apparently agreed and tried to force those standards through an executive order but the workers’ compensation commission unanimously rejected his order. All seven commissioners said they would follow the law as written and not Sanford’s order.