FLORIDA CHIEF FINANCIAL OFFICER TOM GALLAGHER'S WEEKLY NEWSLETTER
Volume 3, Number 18, May 1, 2006
If you want to get prepared for the upcoming hurricane season and save money at the same time, mark May 21 through June 1 on your calendar to take advantage of an important tax break.
In less than three weeks, Floridians can benefit from a 12-day Hurricane Preparedness Sales Tax Holiday when no sales tax will be applied on the purchase of hurricane supplies such as batteries, flashlights, generators and storm shutters. For a detailed list of exempt items, check out the article below.
The 12-day holiday is expected to save Floridians an estimated $41 million and help increase the number of Floridians who get prepared for this year’s hurricane season.
With another active storm season predicted this year, getting hurricane ready means better protecting your home and your family, and recovering more quickly from a disaster.
For more information, visit us at www.MyFloridaCFO.com and click on the “Hurricane 2006” button on the right.
-- Tom Gallagher
GALLAGHER RENEWS CALL FOR INSURANCE REFORMS AS STATE LAWMAKERS ENTER FINAL DAYS OF SESSION
As state lawmakers enter the home stretch of the 2006 legislative session, Gallagher renewed his call for immediate rate-relief, improved access to property coverage and reforms to help strengthen the long-term stability of Florida’s property insurance market. Both the House and Senate have developed legislation that will help address the state’s property insurance crisis.
“Eight catastrophic storms in 15 months caused more than $30 billion in insured damages, and Florida homeowners are bearing the brunt of this burden,” Gallagher said. “We have a property insurance crisis and Floridians deserve solutions that will provide immediate rate-relief and ensure the long-term stability and availability of homeowners insurance in our state.”
But, Gallagher added, Florida’s crisis cannot be solved without federal solutions.
“With 115 major disaster declarations in more than 30 different states over the past two years, we - as a nation - need to plan for the cost of catastrophes,” Gallagher said.
Since 2004, Gallagher has proposed a comprehensive insurance reform plan to better protect homeowners and to reform Citizens Property Insurance Corp., the state’s insurer of last resort. Attached is a side-by-side overview of the proposals he has advocated and their inclusion in the current House and Senate property insurance bills.
As part of his plan, Gallagher urged the Legislature to earmark surplus sales tax revenue collected during hurricane recovery to help offset the added costs of insurance assessments, hurricane repairs or hurricane preparation for this year’s season. “This is not a bailout of Citizens Property Insurance Corporation, it is common-sense relief for Florida’s hard-hit homeowners,” he added.
Other solutions being advocated by Gallagher include:
• creation of a national Catastrophe Fund,
• allowing tax-deferred catastrophe reserves for insurance companies,
• expedited payments to speed up the rebuilding process,
• standardizing Florida’s building codes statewide, and,
• creating federal tax-free Catastrophe Savings Accounts.
Gallagher has also advocated reforms of Citizens Property Insurance Corporation, including capping coverage of homes at $1 million or less, appropriating dollars to retrofit older homes now trapped in Citizens, and requiring the Office of Insurance Regulation to evaluate the success of Citizens’ Market Assistance Program and take-out programs, followed with an annual report to the Florida Legislature.
He said that stricter oversight and greater accountability at Citizens Property Insurance Corporation is also critical, which is why he has advocated the following reforms:
• requiring Citizens employees to adhere to the same code of ethics as public officers/employees,
• establishing an inspector general within Citizens to conduct internal investigations,
• requiring staff of quasi-governmental insurers to provide notification to their respective boards for any financial transactions in excess of $10,000 (consultant fees, advisors, vendors),
• requiring a background check for all executive officers and executive staff of quasi-governmental insurers,
• requiring the Division of Insurance Fraud within the Department of Financial Services to be notified within 48 hours of any suspected fraud.
“Citizens Property Insurance Corporation should be transparent to its policyholders and accountable for its performance,” Gallagher said. “Too many Floridians are counting on Citizens for their homeowners insurance, and they deserve nothing less.”
The Florida Legislature is expected to adjourn this Friday, May 5.
Gallagher said Congress still has time to act on federal solutions, including legislation sponsored by Florida Reps. Ginny Brown-Waite and Clay Shaw to create a federal catastrophe fund and a bill sponsored by Rep. Tom Feeney that would designate catastrophe savings accounts as tax-exempt. Congress is scheduled to recess after Memorial Day and re-convene June 6.
GALLAGHER ANNOUNCES OPERATION SPRING CLEANING
Nearly 80 arrests anticipated in statewide insurance fraud round-up
Florida’s Chief Financial Officer Tom Gallagher announced that his office has launched a special operation targeting the arrest of nearly 80 suspects from Miami to Pensacola for their roles in insurance fraud schemes. Dubbed “Operation Spring Cleaning,” it is one of the largest-ever statewide round-ups of suspects wanted for insurance scams costing hundreds of thousands of dollars.
“All Floridians pay for the crimes these suspects commit through increased insurance costs,” said Gallagher, who oversees the Division of Insurance Fraud. “We’re sending a message that we will continue to tirelessly pursue anyone who attempts to defraud hardworking Floridians.”
Gallagher said it is estimated that all Floridians pay $1,400 a year in additional insurance costs as a result of insurance fraud.
Detectives with the Department of Financial Services’ Division of Insurance Fraud will be making arrests for a variety of schemes including filing fraudulent hurricane claims, selling bogus insurance, staging auto accidents, fraudulently collecting premiums and faking injuries to obtain workers’ compensation benefits. Gallagher said arrests will also be made for prescription fraud and presenting fraudulent insurance cards.
Operation Spring Cleaning kicked off on Tuesday with 40 arrests, including 12 so far for Personal Injury Protection (PIP) insurance fraud. Other arrests already made are for worker’s compensation fraud, health insurance fraud and hurricane claim fraud; in addition, one suspect was arrested for operating as an unlicensed public adjuster, and one suspect was arrested for agent fraud. The first arrests were made in Broward, Miami, Pensacola and Tallahassee. The operation continues through Thursday.
PIP fraud most often involves staging auto accidents or filing fraudulent accident reports in order to bill auto insurance companies for medical care that was unnecessary or never rendered. Workers’ compensation fraud can range from employers understating payroll to avoid paying premiums to workers faking injuries to collect benefits.
Building on past efforts to combat insurance fraud, Gallagher is pushing again this legislative session to tighten PIP fraud penalties, including extending a minimum two-year prison sentence to anyone who files a fraudulent insurance claim for a “phantom” accident. The legislation is being sponsored by Rep. David Rivera and Sen. J.D. Alexander.
Gallagher also is pushing for additional fraud detectives and six more dedicated prosecutors to be placed in Duval, Pasco/Pinellas, Orange, Hillsborough, Palm Beach and Broward counties. Two dedicated prosecutors already are located in Miami-Dade County.
In 2003, the Legislature passed tougher workers’ compensation laws that, in tandem with increased arrests, have led to a more than 30-percent decrease in premiums and about $1 billion in savings for small businesses.
Gallagher said that tougher laws, and aggressive investigation and prosecution of insurance fraud, are critical to combating insurance fraud. In February, the fraud division arrested 21 individuals for allegedly staging 10 auto crashes in the Tampa Bay area and billing insurance companies for nearly $1 million in fake claims. That same month, the division made 25 workers’ compensation fraud arrests – almost one a day.
Gallagher said the fraud division has made more than 3,200 fraud arrests in the last five years.
SOUTHERN FAMILY INSURANCE COMPANY ORDERED INTO REHABILITATION, OTHERS PLANNED
Gallagher Says Policyholders with Southern Family, Atlantic Preferred and Florida Preferred Will Continue to Be Covered This Hurricane Season
Tom Gallagher, Florida’s chief financial officer, announced that a judge has ordered one of three financially troubled property insurers of the Tampa-based Poe Financial Group into rehabilitation. To ensure the company’s policyholders are protected this hurricane season, Gallagher plans to petition the court to allow policyholders unable to secure coverage in the private market to automatically transition to Citizens Property Insurance Corporation by July 1.
Leon County Circuit Court Judge Thomas Bateman appointed the Department of Financial Services as receiver for Southern Family Insurance Company. As receiver for a company in rehabilitation, the department takes over the insurer’s operations and marshals the company’s resources to pay outstanding claims.
“With the hurricane season starting June 1, we are relieved the judge has taken the first step in our plan to transition policyholders to the state’s insurer of last resort without any change in their coverage or premiums,” said Gallagher, who oversees the department. “Our priority now is to get any outstanding hurricane claims paid as quickly as possible.”
The second insurer, Atlantic Preferred Insurance Company is expected to be ordered into rehabilitation on May 1 due to failure to meet the capital and surplus requirements under Florida law.
In an official notice to Gallagher, Insurance Commissioner Kevin McCarty with the Office of Insurance Regulation recommended that both Southern Family and Atlantic Preferred be put into liquidation on or about June 1. If both companies consent, they will enter into liquidation without a hearing.
Southern Family primarily wrote commercial residential and personal residential coverage, and covered approximately 43,000 policyholders. Atlantic Preferred provides coverage to nearly 140,000 homeowners, mostly in South Florida. Both companies were ordered by Insurance Commissioner Kevin McCarty to stop writing new and renewal business earlier this year.
The third insurer, Florida Preferred Insurance Company, is expected to be ordered into rehabilitation on June 1. According to the Office of Insurance Regulation, if the company is unable to obtain reinsurance, it should be placed into liquidation. Approximately 100,000 homeowners are covered by the company.
When a company is in liquidation, the department continues to serve as receiver but the Florida Insurance Guaranty Association (FIGA) is activated to help pay outstanding claims. FIGA is funded by insurers with written premiums in the same lines of coverage. Liquidated assets of the companies will also be used to reimburse FIGA for outstanding claims that are paid.
Gallagher is urging policyholders to work with their insurance agents to obtain property coverage from private insurers rather than with Citizens, the state’s insurer of last resort.
Under the proposed plan from the Office of Insurance Regulation, if policyholders find that Citizens is the only option available, then they will not need to fill out an application or contact Citizens. If any of the companies are ordered into liquidation by the court, coverage would cease on or about June 30 but policyholders would be automatically provided coverage through Citizens on the same day without any disruption in insurance coverage.
Gallagher said that Citizens will provide the same level of coverage with no increase in premiums. However, Citizens’ rates will be applied when a policyholder’s anniversary date arrives, which is when the policy issued by one of the Poe companies was scheduled for renewal.
The Office of Insurance Regulation has suggested the following timeline for rehabilitation and liquidation for the three companies:
April 25, 2006 – Southern Family placed into Rehabilitation. Policyholders are encouraged to seek alternate coverage.
May 1, 2006 – Atlantic Preferred placed into Rehabilitation. Policyholders are encouraged to seek alternate coverage.
June 1, 2006 – If unable to obtain reinsurance, Florida Preferred will be placed into Liquidation. Policyholders are encouraged to seek alternate coverage.
June 1, 2006 – Southern Family and Atlantic Preferred placed into Liquidation. Policyholders are encouraged to seek alternate coverage.
On or about June 30, 2006 — Remaining policyholders with Southern Family, Atlantic Preferred and potentially Florida Preferred will be automatically covered by Citizens Property Insurance Corporation without any disruption in coverage, level of coverage or premium increase.
Gallagher said his goal is to get outstanding claims paid as quickly as possible and assist policyholders with existing damage get needed repairs so they can properly insure their homes when the next offer of coverage is made.
For more information, policyholders can contact the Department of Financial Services at 1-800-342-2762 or log onto http://www.MyFloridaCFO.com.
Hurricane Preparedness Sales Tax Holiday Tax-Exempt Items
The new law provides that no sales tax will be collected from May 21, 2006, through June 1, 2006, on the following items:-
(a) any portable self-powered light source selling for $20 or less;
(b) any portable self-powered radio, two-way radio, or weather band radio selling for $50 or less;
(c) any tarpaulin or other flexible waterproof sheeting selling for $50 or less;
(d) any ground anchor system or tie-down kit selling for $50 or less;
(e) any gas or diesel fuel tank selling for $25 or less;
(f) any package of AAA-cell, AA-cell, C-cell, D-cell, 6-volt, or 9-volt batteries, excluding automobile and boat batteries, selling for $30 or less;
(g) any cell phone battery selling for $60 or less and any cell phone charger selling for $40 or less;
(h) any non-electric food storage cooler selling for $30 or less;
(i) any portable generator used to provide light or communications or preserve food in the event of a power outage selling for $1,000 or less;
(j) any storm shutter device selling for $200 or less per window;
(k) any carbon monoxide detector selling for $75 or less; and
(l) any single product consisting of two or more of the items listed in (a)-(k) selling for $200 or less.
Consumer Services HelpLine (800) 342-2762