First Word: Storm season to deal cards

As was made abundantly clear by last year's insurance industry profits, insurers, along with the inhabitants of windstorm-exposed coastal areas, caught a lot of good luck in 2006 by way of a relatively mild U.S. hurricane season.

Now, with hurricane season upon us once again, who's feeling lucky?

Evidently, many would suggest the state officials behind Florida's plan for providing coastal area homeowners property coverage are feeling fortunate.

It's a high-stakes gamble, some say, and Florida's all-in.

A lot of folks in the industry have been offering many strong opinions on Florida's decision to rely on its state-run Citizens Property Insurance Co. and its state-sponsored Florida Hurricane Catastrophe Fund to bring property insurance rate relief to homeowners in hurricane-exposed areas of the state.

Many industry folks have suggested that state lawmakers are subsidizing development in high-risk areas, increasing Florida's exposure to future storms while transferring the cost of insuring those properties to homeowners in lower risk areas. In fact, those were among the points raised in a study by Milliman Inc. that was released last month. The study was commissioned by the Property Casualty Insurers Assn. of America.

Milliman and the PCI are among those that say the state is engaging in a high-stakes gamble, one that threatens to send Florida to the bond markets seeking tens of billions of dollars to pay claims should a one-in-25-year storm strike and up to $69 billion for a one-in-250-year event.

Such a bond issue would dwarf any previous single municipal bond offering, and could wreck Florida's credit rating in addition to burdening taxpayers for years to come. And structuring a bond issue of that size, particularly given the economic impact from a storm of that magnitude, would likely be time-consuming and challenging.

So, as if the Milliman/PCI study's take on Florida lawmakers rolling the dice on future hurricanes isn't enough, a day or two after the study was released I saw an Associated Press report about the Florida Lottery refusing to pay a $500,000 prize to the holder of a $20 scratch-off ticket. Lottery officials said one of the numbers on the ticket was a misprint.

The ticket buyer said the numbers matched, according to the AP story, making the card appear to be a winner. Not so fast, said the Lottery. A scan of its bar code indicated it wasn't a winning ticket, and what appeared to be a 1 on the scratch-off actually should have been a 13.

In a statement, Florida Lottery officials said, "We are extremely proud of our record of paying every valid claim for all winning tickets the lottery has produced in its 19-year history."

Hmm. A dispute over "valid" claims.

About the same time the lottery misprint story was breaking, a press release arrived from Florida Chief Financial Officer Alex Sink announcing appointees to the Task Force on Citizens Property Insurance Claims Handling and Resolution. No one from the state lottery is on the task force. Still, the situation gives one pause.

Everyone knows that even insurance companies that have been in the business for decades occasionally provide policy documents containing typos and misprints to their customers.

And, as the Katrina experience demonstrates, after a loss, even well-established insurers have found themselves in disputes with policyholders over policy language and exactly what's covered.

Take a look at what some insurers have experienced in Mississippi recently. Now imagine a scenario--not saying it would happen, but imagine--following a major storm in Florida in which state officials face policy disputes from hundreds or even thousands of Citizens policyholders.

Maybe Florida's gamble is even bigger than anyone's reckoned.