Day 1: A polite grilling for insurance execs

February 4, 2008–Florida Today

By Jim Ash
Florida Capital Bureau Chief

TALLAHASSEE — Insurance executives got a polite but chilly reception Monday when they testified under oath to a bi-partisan Senate committee.

The Select Committee on Property Insurance Accountability is demanding to know why more Florida homeowners aren’t seeing lower rates a year after the Gov. Charlie Crist and lawmakers passed insurance reforms that ordered premium reductions.

Reminiscent of congressional hearings, the marathon session featured a table lined with insurance executives fielding sometimes barbed questions from lawmakers staring them down a few feet away. Executives were put under oath by the committee chairman.

“In the end, the product they are selling is merely a piece of paper with a promise on it,” said Sen. Jeff Atwater, a North Palm Beach Republican and co-chairman of the Select Committee on Property Insurance Accountability. “We are here as legislators to make sure that the industry keep its promise.”

In a January 2007 special session Gov. Charlie Crist and lawmakers agreed to greatly expand the state’s hurricane catastrophe fund, giving companies access to cheaper backup insurance in exchange for passing the savings on to their customers.

Regulators have since concluded that less than 20 percent of the overall market saw rates fall and 33 percent did not. The unlucky ones were insured by companies that sought rate increases or decreases that regulators judged too small.

Crist has hired three high-profile lawyers to look into a potential class-action suit on behalf of rate payers.

First up Monday was Allstate. Regulators recently stripped it of its ability to sell new policies in Florida, an action courts have suspended for the time being. The state’s Office of Insurance Regulation said Allstate officials were not complying with a subpoena for internal documents that show how it arrived at a request for a 41 percent rate increase.

Allstate’s rate request eventually was reduced to 14 percent.

Insurance Commissioner Kevin McCarty told panel members that the company has increased its production of documents, turning over about 40,000 pages in what he said appears to be greater cooperation since the state threatened to shut of its new business.

A court temporarily allowed the company to continue accepting new customers, but regulators are challenging the decision in the First District Court of Appeal.

Allstate Floridian Chairman Joseph Richardson came under pressure when Atwater demanded to know why the company, which insures about 250,000 homeowners in Florida, down from more than 700,000 in recent years, adopted a controversial short-term risk model to justify the need for a rate increase.

Atwater zeroed in on a memo that suggested the company was trying to maneuver around insurance reforms by adopting the new risk model. The memo described a discussion Allstate executives had immediately after the measure passed.

“Option B is recommended if the resulting indication is negative,” the footnote said. “It requires an acceleration of Air Version 8 model validation and securing of 2007 reinsurance program.”

Richardson said company officials augmented their risk assessments with a short term catastrophe model that took into account rising sea temperatures that suggest greater hurricane activity.

“I’m confident in our rate-making process. That’s what we came here today to discuss,” he said.

Sen. Bill Posey, R-Rockledge and the chief negotiator of much of the reforms, wasn’t buying it. Posey urged the executives to keep their answers more direct.

“I haven’t seen this much bobbing and weaving since Mohammad Ali did the rope-a-dope,” Posey said.

Some of the grilling turned personal later in the day.

Sen. Ronda Storms, R-Brandon, asked Richardson to reveal his salary. He refused.

“It’s confidential information,” he said after an awkward silence.

After listening to the executives describe a corporate structure that keeps Allstate Floridian a separate entity from the national company, Sen. Mike Fasano wanted to know where the executives live.

“Do any of you live in Florida?” Fasano asked.

All of the executives said no.

Executives also acknowledged that while the company is shedding risky homeowner policies, and suffering from hurricane losses from the disastrous seasons of 2004-2005, its share of the more lucrative automobile market is growing.

Fasano wanted to know if that line of business is profitable as well.

Richardson wouldn’t say.