Commissioner McCarty Reviews Florida Insurance Market Cost Drivers, Solvency Issues at Cabinet Meeting Today
Mar 23, 2010
The Florida Cabinet met today, March 23, 2010, during which Florida Insurance Commissioner Kevin McCarty reported on the State’s property insurance market. The report had been requested by Florida Chief Financial Officer Alex Sink at the previous Cabinet meeting on March 9.
Commissioner McCarty presented the report as part of the Florida Office of Insurance Regulation (“OIR”) agenda. Based on Florida residential property writers’ 2009 annual surplus and results, it listed 206 insurers, 60 of which reported a loss in surplus and 100 of which had underwriting losses. Many companies’ reports indicated underwriting losses combined with surplus gains.
Commissioner McCarty blamed the following Florida-specific cost drivers, along with the national economy, as the reason that insurers are struggling:
- Increasing reinsurance costs
- Claims-related replacement costs
- Fraud
- Mitigation-related premium discounts
- Sinkhole-related abuses
Commissioner McCarty noted that the provisions of SB 2044, Senator Garrett Richter’s omnibus property bill, would serve to address these cost drivers.
He also explained that re-opened claims, many of which have been initiated by public adjusters, are another cost driver. Passage of SB 2264 and HB 1181, the pending public adjuster regulation-related bills, would result in statutory limitations being placed on these types of claims.
Strengthening of insurer surplus requirements to at least $15 million will assist in bolstering insurer solvency, according to McCarty.
He also addressed what he characterized as certain misinformation by clarifying that currently, only two Florida insurers are in receivership, while two others are under administrative supervision. Thus, insolvency impacts have been minimized, although they are seen as inevitable in a capitalistic system.
He also related that, after financial reviews, at least one insurer has been asked to return funds from its managing general agency (“MGA”) back to the company.
The Florida Office of Insurance Regulation (“OIR”) will be supporting potential legislation that would afford greater regulatory authority over MGAs.
Commissioner McCarty explained that the insurance industry is more transparent than other regulated industries such as banking, in which certain information must be confidential in order to prevent “runs” on the bank.
Florida domestic insurers, among which are many success stories, can provide a gateway for private capital to enter into the Florida market. National companies also play a major role.
Florida Chief Financial Officer Alex Sink asked about the availability of market capacity if more insurers fail, to which Commissioner McCarty acknowledged the existence of “some” capacity in the current system. This could be increased with the passage of SB 2044.
Also in response to CFO Sink, Commissioner McCarty indicated there were certain circumstances in which it was appropriate for the OIR to regulate transactions between MGAs and insurers.
While the OIR acknowledges that MGAs have an important role in the insurance industry, it considers greater oversight of MGA regulation to be a critical concern. However, he said that a regulatory balance is necessary in order to preserve capital.
Florida Attorney General Bill McCollum questioned how much MGAs have profited based upon funding that was provided to insurance companies by the State of Florida under the Insurance Capital Build-Up Incentive Program (“Program”). Florida Deputy Insurance Commissioner Belinda Miller explained that, while some of the insurers receiving funding under the Program are part of a holding company system that includes MGAs, the production of MGA fees related to the business generated by the State funds is acceptable, so long as the MGA fees paid by the insurance company are reasonable.
Saying that he felt this area has great potential for fraud, Attorney General McCollum emphasized his concern that MGAs are profiting, while their affiliate corporate insurers are not. Further, Attorney General McCollum cited additional concerns with how many small companies would survive after underwriting losses from a catastrophic storm.
OIR Director of Property and Casualty Financial Oversight Robin Westcott explained that, in determining solvency, an insurer’s existing reinsurance contract must be evaluated.
Florida Governor Charlie Crist asked how an insurance company can lose money without storm-precipitated claims. McCarty cited the shifting of monies to MGAS, increases in fraud and issues relating to mitigation credits as contributing factors to insurer losses.
It was agreed that transparency is critical to regulating the insurance industry. Governor Crist added that he supports legislation that would improve this process.
To access the complete transcript of Commissioner McCarty’s prepared remarks delivered at today’s Cabinet meeting, click here.
Additionally, the following insurance-related items on the agenda were approved with no discussion:
- Request for approval for publication of proposed Rule 69O-149.303; Cover Florida Plan Disclosure Form
- This proposed Rule would adopt the standard disclosure form required by the Cover Florida Health Care Access Program established by law. The form is required to be provided to consumers who purchase Cover Florida Plan coverage and provides disclosures concerning terms of renewal, termination of coverage, portability, grace period, reinstatement, premium changes, pre-existing conditions and cost sharing requirements. It also provides specific plan exclusions and a schedule of services that are not covered.
- Request for approval for publication of proposed Rules relating to Florida’s insurance premium tax and corporate income tax credits for contributions to non-profit scholarship funding organizations.
- The proposed Rules would implement recent statutory changes relating to the tax credits for the Florida Alternative Minimum Tax and contributions to non-profit scholarship funding organizations.
The next Cabinet meeting is scheduled for April 13, 2010.
Should you have any comments or questions, please contact Colodny Fass.
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