Gulf Shores - Captive Insurance Could Be The Answer

The insurance issues are aggressivley being addressed by the powers to be.

Published By Mobile Press Register
Tuesday, March 06, 2007
By RYAN DEZEMBERStaff Reporter

GULF SHORES -- A Montgomery-based company that has already been approved by state regulators, and has commitments for startup funding, plans by month's end to offer services needed to create captive insurance companies along Alabama's coast, the firm's principals said Monday morning.
Speaking at an Alabama Gulf Coast Chamber of Commerce-sponsored forum, Captive Insurance Management LLC founders Norman Chandler and Johnny Johnson said they should be able to offer the services that condominium owners associations and other coastal commercial interests need to create that type of self-insurance.
Chandler is an accountant, and Johnson is recently retired from the Alabama Department of Insurance.
In addition to the Montgomery company, Ken Williams, of the financial services company Wilmington Trust, said that his company would like to emulate on Alabama's beaches the model it set up in Hilton Head, S.C., to allow condo towers there to self-insure.
And former Foley Mayor Tim Russell and South Alabama Regional Planning Commission Executive Director Russ Wimberly talked further about their plans for a local government-backed captive, explaining that they may face delays getting the company up and running.
Daniel Craven, a local lawyer who specializes in condominium law, rounded out the panel.
In the wake of 2004's and 2005's successive hurricanes Ivan and Katrina, insurance prices along Alabama's beaches have soared, with some condos facing annual premium increases of up to 2,000 percent. As a result, a gubernatorial panel assigned after September 2004's Hurricane Ivan to figure out ways to improve the insurance market in the state's coastal region proposed a state law allowing captive insurance companies.
The state Legislature responded by passing a law that lets such companies insure commercial property. Though regulated by the state Insurance Department, a captive would not be subject to oversight regarding its rates, and its premiums would be taxed at a fraction of the levies placed on policies written by other insurers. In theory, that flexibility allows a captive to gauge each property's risk and tailor policies accordingly through direct negotiations with reinsurers.
'A major stumbling block'
About 130 business and condominium owners, insurance brokers and Realtors attended Monday's two-hour forum at the Gulf Shores Adult Activity Center.
Chamber of Commerce President Mark Berson said that his organization decided to hold the discussion after a similar Insurance Department-sponsored meeting last year excluded -- for fear of showing favoritism -- any captive managers who could explain in detail how they might help businesses and associations beat soaring insurance rates.
"I think one of the reasons you've seen condominium sales slow down has been the cost of the wind premium," Berson said. "It's a major stumbling block that could affect our economy drastically if we don't help solve this problem."
This afternoon, for example, the Orange Beach City Council will consider a request from developers of the planned Coral Reef condo tower, a 387-unit Gulf-front project, to extend the deadline to begin construction by a year. Among the primary reasons the developers want more time, their lawyer Greg Leatherbury wrote in a letter to city officials, is "insurance uncertainty." Beyond the building fees, property tax revenue and job creation, developers of the 30-story towers have pledged a total of $4 million to bury several miles of power lines under Alabama 182.
Understandably, city officials in Baldwin County, accustomed to the revenue streams brought by the development boom of the last 10 years, have been receptive to Russell and Wimberly's plan for a captive company backed by $20 million in startup capital from the cities of Orange Beach, Gulf Shores and Mobile, as well as Mobile and Baldwin counties.
Mike Beech, who is a member of the Pass Condominiums Owners Association in Orange Beach, asked whether captive coverage could be obtainable before associations like his have to renew their high-rate policies for another year.
"I think that the captive can be ready," Chandler said. "The question is, can your association move fast enough?"
Chandler said that because his management company has secured startup capital from investors, it will be able to use that money to fund the creation of captives, putting coverage in place before hurricane season starts June 1 and seeking repayment through the premiums that associations pay.
Craven said while the government-sponsored captive that Russell and Wimberly would like to see formed may not be operational until at least November, the already licensed private company is probably the best option for those looking to start a captive before next year.
"Right now, (Captive Insurance Management) is going to be the ballgame in town," Craven said.
Wimberly said a constitutional prohibition against local governments participating in for-profit endeavors could cause delays. Proponents of the government-backed captive are already discussing with state legislators an amendment to the state's captive law to allow government investment, he said.
"Having said that, there is a way around the constitutional ruling, and that is allowing governments themselves to form their own captives and then have a government captive invest in the larger captive," he said. "That's kind of a red-tape situation, and I don't like to do that, but if we have to do that, that's a possibility if we can't get any legislative support."
Russell also said they would seek a declaratory judgment in state court clearing the captive's structure before proceeding. Obtaining circuit court approval is a common last step in public-private partnerships and provides a buffer against future litigation seeking to derail the pact.
On Monday, Dean Young, an Orange Beach resident and member of the city's planning commission, said he planned to spearhead an effort to convince legislators to allow homeowners insurance under the captive law. Currently, duplexes and condominiums are considered commercial entities under the law and are eligible for coverage, but single-family homes are not.
Later Monday, Russell and Wimberly pitched their plan to Gulf Shores officials at a City Council work session. Like Orange Beach, Gulf Shores has a higher assessed value of commercial property than Mobile because condominiums are considered businesses even if they function as full-time residences.
Gulf Shores officials were generally supportive of the plan and asked to see a more refined proposal.
Russell and Wimberly said that while their figures are preliminary, based on the city's amount of commercial property, Gulf Shores, like Orange Beach, could be asked to contribute anywhere from $4 million to $6 million into the captive's creation.
"The insurance for us is a major obstacle at this point in time, and if municipalities in this state do not get involved, it is not going to get better anytime soon," Mayor G.W. "Billy" Duke III said.
Wimberly said he next plans to meet with officials in Mobile and Mobile County, who have so far been "informally supportive" of the plan. A Mobile County captive would focus on waterfront industries -- seafood processing plants, for example, he said.