New property insurance law predicted to help bottom line for insurers

May 24, 2011

The following article was published in the Florida Tribune on May 24, 2011:

New Property Insurance Law Predicted to Help Bottom Line for Insurers

By Gary Fineout

One of the nation’s credit rating agencies said that a newly enacted property insurance measure would help private insurers operating in the state of Florida.

A weekly credit outlook report from Moody’s Investor Service said that SB 408 “is credit positive for insurers operating in Florida, where profitability has been weak and insurers have exited the state in order to reduce peak U.S. catastrophe exposure.”

Gov. Rick Scott signed the legislation into law last week despite critics who maintained it would harm consumers. Scott said he signed it to help stabilize the state’s fragile property insurance market.

The new measure makes a number of changes, including reducing the time homeowners have to file claims from hurricanes and sinkhole damage. Homeowners would have just two years for sinkhole claims and three years for windstorm claims.

The legislation also places limits on sinkhole coverage and it makes changes to how insurers compensate homeowners for claims, including allowing insurers to require that repairs be made before they fully pay off a claim for damage to a home.

The analysis by Moody’s noted those changes and the ability of insurers to gain expedited approval of price increases up to 15 percent in order to recover reinsurance costs.

“The bill’s provisions will improve insurers’ bottom lines,” states the analysis, which points out that 10 of the state’s 20 homeowners insurers receive most of their premium dollars from homeowners insurance.

Yet Moody’s does not agree with the position taken by backers of the legislation, including Sen. Garrett Richter, R-Naples, the main sponsor.

Richter maintained during debate on the Senate floor that since the changes would reduce costs for insurers it would eventually lead to more competition among insurance companies in Florida.

Instead Moody’s says that Citizens Property Insurance — the state-created carrier with more than 1 million policyholders — will “continue to compete with the private insurance market to such an extent that large homeowners insurance carriers are unlikely to expand their presence in the state.” Legislation to change Citizens was introduced this past year but it came under fire since it mandated rate hikes above what Citizens is currently allowed to charge.

“Insurers in the past 12 months have received approval for rate increases, with State Farm Insurance [unrated] receiving approval for an 18.8% rate increase in April,” states the analysis. “Although insurers have not recently experienced large hurricane-related losses in Florida, potential hurricanes remain among the biggest credit challenges for homeowner insurers in the state. This new legislation is nevertheless noteworthy and positive, particularly given the state’s difficult regulatory environment.”

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