Q & A with Senator Ben Brooks re Insurance Reform

For many years the law firm of Boteler, Finley &Wolfe has been advocating for insurance reform in Alabama to help individuals and small businesses with the issue of rising insurance premiums, diminishing benefits and coverage and what we consider to be unfair claim practices. During his tenure in the Alabama Legislature Senator Ben Brooks of Mobile has been an advocate in our State, and specifically along the Gulf Coast, for insurance reform for homeowners and small businesses. Recently Mark Wolfe of BF&W sat down for a Questions and Answers session with Senator Ben Brooks on the topic of insurance reform.

Wolfe: Senator Brooks since your election to the State Senate in 2006 you have been working for insurance reform in Alabama. Can you tell us why this issue is so important to you?

Brooks: Progress on the issue of property/homeowner's insurance reform is profoundly important to the future of our entire region and state. The insurance crisis impacts economic development, job creation, the availability of housing, and the affordability of housing. It negatively affects people from all walks of life and significantly impacts our business community. Reform in the area of property and homeowner's insurance simply must be a top priority for our community. We should approach the issue in a manner similar to how we would rally to seek a major economic development.

Wolfe: Early on in your attempts to push through insurance reform legislation, some of your colleagues in North Alabama were reluctant to support your initiatives claiming it would only benefit individuals and businesses on the Alabama Gulf Coast. Since the devastating tornadoes in April 2011, do you think your peers from those areas that were hit by the tornadoes will be more interested in this issue?

Brooks: Many of us have argued for years that the property/homeowner's insurance issue is a statewide issue. However, in the first few years of the insurance reform effort there were many hurdles to our efforts. Among these hurdles were occasional sad displays of partisanship and occasionally some lack of support from some other geographic regions. Frankly, over the years the geographic political issues began to decline as we made our case for reform.

When the tornados hit the central and northern areas of our State the first concern for legislators along the Gulf Coast was to seek out ways to help our brothers and sisters to the north. Our prayers and thoughts went out, and continue to go out, to those who suffered the terrible tragedies.

Since the tragedies in 2011 some in the insurance industry have announced the cancellation of tens of thousands of policies in areas north of Mobile and Baldwin Counties. Some legislators in the north and central areas of our state are now working more closely on the matter of insurance reform. It was an honor to work with Senator Gerald Allen of Tuscaloosa after the tornados in 2011 to add additional relief provisions to one of my reform bills. These new provisions expanded the bill to include other parts of the state other than Mobile and Baldwin Counties. We expect this will occur more and more frequently.

Wolfe: A few years ago ALFA Insurance Company was critical of you and your attempts to bring about legislation for insurance reform. What is the basis for their concerns and have you considered the economic interests of the insurance companies on the issue of reform?

Brooks: Without question some in the insurance industry have been more willing to talk about insurance reforms than others. Each of the industry representatives should have to outline why they in the past took a particular position in opposition to reform. However, in general it often seems that when legislation is proposed that may result in changes to the status quo, then some interests are automatically resistant. This has been true in the insurance reform effort as well.

We have a crisis of both availability and affordability in the homeowner's insurance area. Legislators on all sides understand that under our economic system we must and we should do everything we can to improve and strengthen the insurance marketplace. A state-owned insurance company is not the answer.

Wolfe: Have you done research on this issue as far as reform measures adopted and implemented in other States? And, have any other States been able to effectively help individuals and small businesses with their insurance reform measures? If so, what reform measures from other States do you think might be beneficial in Alabama.

Brooks: When I was first elected in 2006 I spent most of my first year in the Senate surveying the insurance reform ideas of others and surveying what a number of other states had done. I found two basic models. First, the Florida model basically meant that Florida started a state-owned insurance company. Under this approach the budget of the State of Florida could be significantly and negatively impacted in the event of a catastrophic event.
An example of the competing approach was the reform enacted by South Carolina. South Carolina primarily sought to improve and promote the private marketplace. In its broad omnibus bill South Carolina included a restructuring of its residual carrier (wind pool), added greater consumer representation on the board of its wind pool, created tax incentives to encourage the expansion of coverages, and added incentives to strengthen existing homes, among many other ideas. Many of the bills I have pursued in Alabama were influenced by the South Carolina approach.

Wolfe: To date, what do you consider as your best accomplishment on the issue of insurance reform?

Brooks: It would be hard to single out one item as a "best accomplishment". However, I suppose I am most proud of just how much the overall insurance reform effort has grown. We really are part of a broad movement now.

In the early days of our efforts there didn't seem to be that many people talking about this crisis. Today we have many people and groups working hard to find solutions. It would be an honor to think that I might have had at least a small role in helping to get that movement started. There certainly is still much work to be done, but sort of like the theme of the movie "It's a Wonderful Life", I do believe that things are better right now versus what they might have been if we all had not been working on this issue.

There are parts of this insurance crisis that would be difficult for any single state to solve. For instance, the cost of international reinsurance is a significant factor in the escalating price of homeowner's insurance. "Reinsurance" is generally provided by large international entities over which Alabama alone would have little influence.

However, there are a number of things we can do in Alabama. Among the bills we've already passed are:

1. Authorization for the creation of captive insurance companies in the context of commercial or homeowner's insurance (this was previously prohibited under Alabama law).
2. The imposition of mandatory insurance premium discounts for homeowners that voluntarily retrofit (strengthen) existing homes or who build new homes to higher standards. This bill is now being used as a model in other states.
3. The creation of the "Strengthen Alabama Homes Act" which established a trust fund under the control of the Alabama Insurance Commissioner through which grants would eventually be available for homeowners to retrofit existing homes and get insurance discounts.
4. Codification of the state "wind pool".
5. Requirement that state filings by insurance companies seeking rate increases must be made public records.
6. Revisions to state regulations so that the state insurance commissioner could more quickly approve the entry of new surplus lines insurance companies into the Alabama market.

There are also a number of bills being pursued and new ideas being explored. They include:

1. Requiring industry transparency in terms of premiums, claims and losses.
2. Restructuring and strengthening the "wind pool" (AIUA).
3. Adoption of tax incentives to encourage private carriers to take individual policies out of the state "wind pool".
4. Evaluation of a tax-deferred catastrophe reserve to encourage the restoration of the market.
5. Studying the modeling systems used by the carriers to evaluate risks and premiums which the industry asserts are actuarially valid.
6. Evaluation of alternatives to strengthen the market to attract a larger industry presence and improve availability.
7. Consideration of alternative insurance products, such as larger deductible products with a catastrophic backstop.
8. Enactment of an insurance fraud law.

Wolfe: What do you think individuals and small business owners can do to help bring about meaningful insurance reform legislation in Alabama?

Brooks: The most important thing that individuals and small business owners can do is to continue to make sure that their elected and civic leaders know how strongly they feel about the need for reform. In 2011 the Governor's Affordable Homeowner's Insurance Commission met in Mobile and there was "standing room only". This sent a strong message to Montgomery about how strongly we feel about this problem. There will be many other such opportunities for us as individuals and in group settings. We must all take political ownership of this difficult issue. Our voices do make a difference.

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Insurance Reform in Alabama

Senator Ben Brooks