Competitive Enterprise Institute: Questions for Florida’s Insurance Commissioner

Aug 26, 2009

The Competitive Enterprise Institute, a non-profit, non-partisan public policy group espousing free enterprise and limited government, issued the following editorial on August 25, 2009:


CEI Suggests Questions for Florida Insurance Commissioner

“A lot of serious unanswered questions” 

Tallahassee, Florida, August 25, 2009-Scholars at the Competitive Enterprise Institute, a free market think tank, today urged Florida Insurance Commissioner Kevin McCarty to accept Rep. Scott Plakon’s invitation to appear before the House Insurance, Business, and Financial Affairs Policy Committee.

“There are a lot of very serious unanswered questions,” says Christian Cámara, director of CEI’s Florida Insurance Project.  “And Commissioner McCarty needs to answer them.” Cámara, along with CEI Center for Risk, Regulation, and Markets director Eli Lehrer suggests that members of the committee ask McCarty the following questions:

1. What percentage of the capital that has entered the state backs the ordinary homeowners’ insurance policies – HO-3 and HO-8 policies – that most individuals want and most banks demand? How did you arrive at this number? Do you think this amount is sufficient?  How does it compare to the capital provided by firms like State Farm that have exited the state?

2. In his statement vetoing HB 1171, Gov. Charlie Charlie Crist stated that a major part of his rationale for stopping the enactment of the bipartisan bill was that Florida “has added new property insurance writers and a significant amount of new capital since 2006”. Since most of the capital that has entered the state does not back policies writing ordinary homeowners’ insurance policies, do you believe that the governor had complete information when issuing his veto?

3. Many of the new firms entering the state are rated only by Demotech, which is not an SEC-designated Nationally Recognized Statistical Rating Organization (NRSRO). By when do you believe that an NRSRO will grant satisfactory ratings to any of these new firms? On what do you base this belief? 

4. The handful of new firms writing HO-3 and HO-8 policies rely almost entirely on the Florida Hurricane Catastrophe Fund and private reinsurance, in order to diversify their risk portfolios. By all accounts, reinsurance is the single most expensive type of capital available to insurers. This suggests that, in order to remain financially stable, these companies will have to charge rates well above those charged by more diversified carriers. Nonetheless, many claim to charge lower rates. Do you believe that these firms will remain solvent? Why or why not?

5. Several of the new firms entering the Florida market to write HO-3 and HO-8 policies only write them on very high value homes costing $1 million or more. As of July, the average home in Florida sold for less than $200,000. How does the coverage these firms provide benefit typical Floridians?

6. Your department does not regulate the rates or forms of excess and surplus lines policies. As the great bulk of the capital entering the state goes to back only E&S policies, it appears that insurers are only willing to bring in new capital to write policies that your department largely leaves alone. Does this suggest that you should somehow change the manner in which your department carries out rate and form oversight? Why or why not?

7. At least two firms that have entered the state still have not written any policies. Do you have any evidence that they intend to write policies? If so, and when do you expect them to do so? If you do not have such evidence, why does it make sense to count these firms amongst new market entrants?

8. If any of the new firms collapse, the Florida Insurance Guarantee Association will have to pay a large portion of their claims. As FIGA has no assets of its own, it will have to charge assessments (taxes) to all insurance policy holders in the state in order to pay these claims. Has your department estimated the likely costs of these assessments if any or all of the new entrants were to collapse? Also, has your department produced estimates how much these potential assessments would add to a typical Floridian’s homeowners’ insurance bill? Why or why not?