Florida Underwriter: Compromise Measure on Florida’s Property Insurance Market Could Emerge

Apr 21, 2010

The following article appeared in Florida Underwriter on April 1, 2010:

Industry Cares as Much About Cost Drivers as Rates 

By Gary Fineout

After years of fighting between politicians and Florida’s property insurers, it appears that the state’s private carriers may be on the verge of getting the ability to raise their rates by a limited amount.

The only question is whether such an approach is enough to win over a majority of the Republican-led Legislature and Gov. Charlie Crist. Last year, Crist vetoed a bill that would have given major insurance carriers the ability to avoid rate regulation altogether.

Initially, there was another push during the 2010 session for the deregulation, or the so-called “consumer choice” bill, but the veto fears and a potential political backlash during an election year have dimmed its prospects for passage.

Instead, the focus has shifted to a comprehensive piece of legislation that would give insurers the ability to raise rates anywhere from five percent to 15 percent on an annual basis. Rival versions of the legislation have differing amounts and slightly different restrictions on how much insurers would be able to charge.

A Senate version, for example, would allow insurers to raise rates up to 10 percent based on an annual index produced by state regulators. This legislation would also allow part of that rate hike to be used to recover certain expenses, including an insurer’s right to appoint agents and calculate agent commissions.

Insurance agents are backing this change because they say state regulators pressure insurers to lower agent commissions as a way to reduce rate hikes, a charge that the Office of Insurance Regulation (OIR) denies.

However, despite the prospect of winning some limited ability to raise rates, those in the insurance industry say that it is just as important that they exit the 2010 session with legislation that addresses some of the issues that have caused many carriers to post losses during years when there have been no hurricanes.

“While the ability to raise rates is very important, it’s not the entire solution,” said Sam Miller, executive vice president of the Florida Insurance Council. “We desperately need legislation that gets at the cost drivers. We need a comprehensive property bill, we need the ability to get rates approved in a quick manner when companies really need it – yet we need a lot more than that.”

What Miller and others fear is that the attention over the rate-making portion of the legislation will overshadow the other parts of the bill, and they will leave the session with nothing to show for it.

Most Carriers Lost Money in 2009

This sense of urgency in the industry is fueled by news reports that have raised questions about the financial stability of property insurance carriers in Florida. A March analysis prepared by the OIR shows that only 11 out of the 35 largest carriers in the state of Florida posted underwriting gains in 2009.

One of those was Citizens Property Insurance Corp., the state-created insurer that has more than 1 million customers. Some of the other carriers were United Services Automobile Association, USAA Casualty Insurance, American Bankers Insurance, ASI Assurance Corp., Hartford Insurance Company of the Midwest, and Nationwide Insurance Corporation of Florida.

OIR data also shows that 16 out of the top 35 companies lost surplus – or reserves available to pay claims – during 2009.

The bills that are moving through the Legislature would tackle three key items that those in the industry say are responsible for some of the financial problems: Wind mitigation discounts; replacement costs for damaged houses and personal property; and the ability to file claims years after a storm has taken place.

The two main bills, HB 447 and SB 2044, would also require new carriers to increase surplus requirements from $5 million to $15 million. Existing carriers would be required to go from $4 million to $5 million until 2015, at which time they too must have a $15 million surplus.

The biggest controversy so far has been about changing state law regarding how carriers have to pay out initially for claims. In the wake of multiple storms, legislators in 2005 changed state law so that carriers must pay full replacement costs if someone purchased a policy that covers replacement costs.

The main House property insurance bill, however, would allow insurers to pay the depreciated value or 40 percent, whichever is higher, for personal contents or damages to a house. Insurance customers would then be required to submit receipts or invoices showing that they made repairs or bought new items to replace what they lost.

The Senate property insurance bill is slightly different. It states that replacement costs are not needed for roofs that are 20 years old. That bill also states that homeowners would get actual cash value for their homes until they obtain a contract for repairs. Personal property losses for appliances, clothes, and the like would be covered at actual cash value or 50 percent of replacement costs, whichever is higher. The balance would be paid once receipts are submitted.

Supporters say this practice follows what goes on in other states and is needed to ensure that insurance customers actually use their insurance money to rebuild and replace what is lost.

However, some legislators contend that it is grossly unfair. They say homeowners who are reeling from a devastating storm do not have the money to go out and replace their personal possessions.

“If your house is blown away, you don’t want to be given depreciated cost,” said Sen. Ronda Storms (R-Brandon). “Regular middle-class Americans don’t have the money to go out and buy 50 percent of their personal goods….I just think it’s anti-consumer.”

While there is a battle over replacement costs and rates, another ongoing property insurance battle this session is between public adjusters and those in the industry. The bill that would place a three-year limitation on claims – as well put additional restrictions on how public adjusters advertise their services – has seen some movement, despite complaints from adjusters that they are being punished for helping consumers deal with insurance companies.

The prospect for this legislation remains a bit unclear because while the Senate has moved the bill along, it has yet to receive any attention from the House.

Backlash Against Top Regulator

Lawmakers are also spending some time during the 2010 session debating the future of Florida’s top insurance regulator.

One bill would subject the insurance commissioner to a confirmation vote every two years. The legislation is a result of a backlash against current Insurance Commissioner Kevin McCarty, who has never been reconfirmed for his job after initially getting appointed while former Gov. Jeb Bush was in office.

Chief Financial Officer Alex Sink has refused to reconfirm McCarty (who has the solid backing of Gov. Crist), despite current state law requiring that both the governor and CFO must agree in order to hire, or fire, someone new.

McCarty has earned the enmity of some legislators and those in the industry because of the way he handled State Farm Florida’s rate cases and his decision to oppose the 2009 deregulation bill that was ultimately vetoed by Crist. Sen. Mike Bennett (R-Bradenton), sponsor of that legislation, said he changed the bill to meet McCarty’s concerns only to have him change his stance on the measure after the 2009 session was over.

Sen. JD Alexander (R-Lake Wales), recently suggested that McCarty was more of a politician than a professional regulator and that perhaps the Legislature should reinstate an elected commissioner. The post used to be an elected one, but state lawmakers changed it to an appointed position in 2002 after voters created the new CFO post. At the time, legislators did not want the post to have complete control over insurance rates.

The bill that would require a confirmation vote is backed by CFO Sink and others, but it is unclear whether or not Crist would approve it if it reached his desk. Sen. Storms and some other GOP legislators contend that a confirmation vote every two years would “hyper politicize” the insurance commissioner post even more because the state’s regulator would have to cater to the whims of state legislators.

SOURCE:  http://www.floridaunderwriter.com/Issues/2010/April-2010/Pages/Compromise-Measure-on-Floridas-Property-Insurance-Market-Could-Emerge.aspx