Insurance Safety Net in Florida Needs Infusion

MIAMI — The insurance industry’s safety net in Florida split open after Hurricane Andrew, and it will take an act of the Legislature to sew the $500-million hole shut.

A fund that for 21 years successfully covered the losses of failed insurers has gone broke trying to pay 18,000 hurricane claims filed by the clients of six bankrupt companies. A seventh, Nova Southern Insurance Co. of Miami, folded Monday, leaving 9,300 more policyholders in the lurch.

“Where am I? Going nowhere fast,” a customer of defunct Regency Insurance said while waiting last week for an appointment with the Florida Insurance Guaranty Assn. Contractors say his house needs $40,000 in repairs, but he has nothing to pay them to start working.

“They have been given the runaround for so many months,” said Lisette Lozano, a state Insurance Department supervisor working on the company liquidations. “Now we’re faced with the fact that we don’t have the money to pay out.”

The association is still writing checks for $1 million a day by dipping into funds reserved for other lines of insurance, but only hardship claims and living expenses are covered.

The industry-funded nonprofit association has paid $142 million on hurricane claims but needs $300 million to $350 million more, said Jerry Service, FIGA general manager. A few financially shaky companies could push the sum even higher.

“The whole scheme worked great for us for 21 years,” Service said. “You never spend more than $12 million or $14 million in a year. We felt we were really set.”

No one anticipated Andrew’s record damage. With the insurance failures adding to the misery of mass destruction, many policyholders are stuck in time three months after the storm.

“Of course people are distraught over it,” Service said. “We’re talking about 90-plus days now. If I didn’t have a roof and it rained on me every day, I’d be upset.”

In a special session that begins Wednesday, the Legislature will be asked to lift a 2% cap on industry assessments and approve a bond issue to fill the gap.

Even if all goes well, settlement checks probably won’t be written again until early January, Lozano said.

Policyholders of failed companies often got the runaround trying to settle their claims before waking up one morning and reading in the newspaper that their company went under.

“At first when the companies go into liquidation, people go crazy because they don’t know what to do,” Lozano said.