Florida politicians do not understand how much risk their state is taking on through its publicly run catastrophe fund.

And Bermuda’s reinsurance industry needs to work harder to get across the message that it can benefit Florida by shouldering more of its hurricane risk.

Those were two of the main themes to come from rival members of the Florida House of Representatives, Kevin Rader (Democrat) and David Santiago (Republican), who put aside their political differences in Hamilton yesterday to talk about the insurance issues facing their state.

Apart from the politicisation of insurance issues and the high level of state participation in the industry, they highlighted the relatively high fees paid to public adjusters as well as numerous fraudulent claims as significant issues.

During a session at the Insurance Day Summit at the Fairmont Hamilton Princess, moderated by RenaissanceRe general counsel and chief compliance officer Stephen Weinstein, Rep Rader and Rep Santiago made the case that insurance was a non-partisan issue — though this was not the way it was treated in Florida politics, where homeowners are saddled with some of the world’s highest insurance rates.

Both politicians are pushing for a reduction in the scale of risk taken on by the Florida Hurricane Catastrophe Fund (FHCF) and state insurer Citizens, which issues around one million policies.

Bermuda reinsurers would be well placed to benefit from a transfer of Florida risk from the public to the private sector.

“There’s a lot of education that needs to happen to let legislators know the realities of the risk Florida’s taking right now with the Florida Hurricane Catastrophe Fund, with Citizens,” Rep Santiago said. “The private sector needs to be at the table with educating the legislators and clearly defining the risk.”

“In a gubernatorial election year, it’s going to be harder to make reforms happen in the insurance industry — that’s just a fact,” Rep Rader said.

“But we’re going in the right direction. Over the last year Citizens has come down to about a million policies, down from 1.5 million. The domestic insurers are doing well.”

Rep Rader described the FHCF as “subsidisation that the state of Florida can’t pay in the long run”.

“When you have what is effectively phantom reinsurance and you have a market here that has excess capital, especially out of Bermuda, then it makes sense to reduce it on one side and ask our friends here to step up a bit with the capital they have.”

Mr Weinstein suggested that the prevailing perception in the Florida state capital Tallahassee is that reinsurers don’t have enough capital — an impression not supported by the facts.

Mr Rader said the industry had to be proactive in addressing misconceptions.

“There’s a saying that if you’re not at the table, you’re on the menu — and this industry is on the menu quite often,” Rep Rader said. “It’s easy to pick on your industry because when companies file for rate increases, then boom — you get the news story.

“You guys have hundreds of millions of dollars invested in Florida — spend two days in Tallahassee and meet some people and protect your investment. Meet them and help them understand what you guys do and how your industry is important.”

He said it was necessary to use “kindergarten language” to explain the important role the Bermuda reinsurance industry played in providing coverage for Floridians.

Although there is little hope of serious insurance reform in a year when former state Governor Democrat Charlie Crist will challenge Republican incumbent Rick Scott at the polls, Rep Santiago was optimistic on the prospects for reform next year. This would be helped by a targeted approach by reinsurers in educating decision-makers, he added.

He said there should be a focus on “the risks that many of the state legislators don’t know that Citizens are on the hook for”.

Referring to the lengthy period since Florida suffered a major hurricane strike, Rep Santiago added: “I guess we’ve had eight years of luck in Florida, which is unprecedented historically, but it’s coming. And I think the education side on what the real risk is with assessment and claims — it’s not even discussed.”

The primary issue of most legislators when insurance reform was proposed was whether voting for it would cost them re-election, Rep Rader said.

Rep Santiago added that he had spoken with Representatives, particularly from south Florida, who felt they could not vote for insurance reform even if they felt it was the right thing to do, as it would go against public opinion.

“I’ve talked to Representatives who believe in good policy changes that need to be made, but they’ll say to me, ‘I could never support that’, with the public opinion that’s in south Florida right now. They know the policies will be spun to say that it increases rates.”

Moderator Mr Weinstein said after the panel discussion: “Florida represents a market opportunity for which the capital efficiencies, catastrophe modelling expertise and portfolio tools pioneered by RenaissanceRe and others in the Bermuda market are strongly suited. At the same time, the state possesses a unique set of challenges arising from the persistent, qualitative risks of ‘social inflation’, including costs that arise from Florida’s differentiated bad faith, tort, and claims adjusting rules, and the historical politicisation of property insurance issues.

“RenaissanceRe remains committed to the Florida market for the long term and will continue to work with our clients, political leaders and other stakeholders to navigate these dynamics and support this important market.”

He also praised the politicians who took part in yesterday’s session.

“We are grateful for the public service of Reps Rader and Santiago, and their participation in this conference. Though members of different parties, they are aligned in their commitment to their constituencies, their principled approach to leadership, and their courage and willingness to pursue real solutions to tough challenges.”