EDITORIAL: Insurance dilemma

May 19, 2008

Hurricane season starts in two weeks.

Bradenton Herald--May 18, 2008

Even more frightening: One of the biggest pocketbook issues over the past year – property insurance rates – got short shrift from the Legislature this session.

There was plenty of political huffing and puffing but nobody blew the insurance industry’s house down.

Floridians are still stuck paying outrageous rates – an average of $2,000 annually, double the cost from three years ago. “Double” sticks in the craw like a jalapeno pepper, especially since the insurance industry raked in an estimated $3.7 billion profit in Florida last year.

Last year’s legislative attempt to fend off rate increases by supplying cheaper reinsurance came up woefully short. The promised average savings of 25 percent materialized on way too few policies. And some insurers demanded rate hikes.

Lawmakers turned blue in the face berating the industry over that. To no avail.

So this past session our legislators spent their time huffing and puffing some more, with the Senate in particular scolding some big insurance companies about collusion, conspiracy and price gouging. And breaking state law to boot.

Guess what that got us? Anyone expecting significant reform on property insurance rates must be disappointed. We are.

Just what did the Legislature manage to produce on the issue? Some minor victories, but little rate relief.

Citizens-Cat Fund jam

They reined in the one insurer under their firm grasp, state-run Citizens Property Insurance, extending the freeze on rates until 2010. While “freeze on rates” sounds great to consumers, it’s problematic.

Coupled with lawmakers taking $250 million out of Citizens’ reserves to fund long-term, low-interest loans for private insurance companies, the state insurer has been put in a perilous financial situation. With that drop in reserves and a rate freeze, Citizens could not cover tens of billions in claims in the event of a bad hurricane season. Ultimately, all of the state’s policyholders are on the hook to pay off claims.

That’s exactly what’s happening now – with the Florida Hurricane Catastrophe Fund seeking another $600 million from all policyholders to pay claims dating back to the 2005 hurricanes. We could be paying a 1 percent surcharge on every type of insurance policy all the way through 2012 – and that’s on top of a 1.4 percent surcharge through 2017 that covers Citizens’ deficit for the 2005 storms.

The so-called Cat Fund sells the lower-cost reinsurance that last year’s law required companies to buy in order to pass along savings to consumers. We know how that went.

All in all, the Legislature left the Citizens-Cat Fund situation on shaky ground.

Other parts of package

This session’s insurance legislation also lets policyholders sue an insurer for failing to pay the “undisputed” portion of a claim within 90 days. While that’s a plus, it still forces consumers to go to court.

The bill bans companies from charging a rate increase before final approval by state regulators. Hitherto, insurers could start collecting higher rates, request approval and refund the money if rejected – but without paying interest. Guess who pocketed that? Thank goodness it’s no longer policy. This ban, though, is only in effect through 2009. It should be permanent.

The insurance package doubles fines on insurers who violate fair-trade practices, to $40,000 – another plus.

Possibly the best part of the legislation forces insurers to set rates based on state-approved hurricane models and opens work by the state’s actuaries to public review. Insurers have been able to dodge criticism over rates by citing secret actuarial tables and cockamamie formulas they would not explain – no doubt designed to boost profits.

That’s the stand Allstate took in its showdown with regulators. The state demanded documents, some relating to hurricane modeling, rate setting and reinsurance contracts, and Allstate refused – claiming much of the information was a trade secret. No company wants transparency that might reveal consumer gouging via fuzzy math.

State-Allstate battle

Regulators pressed the matter by trying to suspend Allstate’s ability to sell new policies, and the bare-knuckles fight came to a head this past week. An appeals court upheld the suspension, but the state lifted the ban after Allstate complied with the document demands.

One aspect of the Florida-Allstate duel centers around the accusation that the company skirted that 2007 state law mandating lower rates. Instead of cutting rates, Allstate sought a 42 percent increase. The company withdrew that request this year.

Like state regulators, we want to see the documents that would justify that galling figure. We want to see the “actuarially sound” reasoning – the industry’s favorite cover phrase – behind that.

At the very least, the Legislature’s insurance bill opens up the process more by requiring transparency. Consumers may not have won significant savings or reform this session, but transparency’s a victory we’ll take.

Gov. Charlie Crist is expected to sign the package into law. With his vehement attacks on the industry, we expect his pen is poised.