EDITORIAL: Insurance rate-hike request over the top
Jul 24, 2008
OUR OPINION: STATE REGULATORS MUST CONSIDER ALL RELEVANT FACTORS
Miami Herald--July 24, 2008
There is a silver lining in State Farm Florida Insurance Co.’s request to hike windstorm policy rates by as much as 70 percent in some areas: The insurer is asking state regulators to approve a rate-increase request, not an already implemented rate hike. This is because the 2008 Legislature extended a ban on the latter approach through next year, giving residents — especially those of us in South Florida — temporary respite from unreasonable, exorbitant rate increases.
Fair shake for both sides
The new law also gave residents a modicum of protection by eliminating the notoriously biased arbitration panels, which almost always favored insurers. Now an appeal of a rate-request rejection will go to the Division of Administrative Hearings, which presumably will give each side a fair shake.
These changes are part of the bargain state lawmakers made with insurers that sought to create favorable operating conditions for insurers while simultaneously protecting homeowners from outrageous rate increases.
The other part of the bargain was a mitigation program that allowed homeowners to get modest discounts on premiums when they strengthened windows, doors, etc., making their property more resistant to strong winds. For insurers, stronger homes should result in fewer claims and lower payouts after storms. Finally, the state last year passed a law requiring insurers who bought reinsurance from the state Hurricane Catastrophe Fund to pass on the savings to customers. When state regulators consider State Farm’s rate-hike request next month, they should include these factors in their analysis.
The prism through which State Farm is basing its request is exceedingly narrow. The company has enjoyed a robust business in Florida since the 1920s. Business was so good most years that State Farm eagerly took on as many homeowners as it could, building up a customer base that made it Florida’s largest private home insurer.
No hurricanes in two years
After a few big storms hit the state several years ago, the company began dumping policyholders, and this year announced that it would stop writing new policies in Florida. In 2006, State Farm hit policyholders with average rate increases of 52.7 percent, and some homeowners were walloped with an extraordinary rate hike of 146 percent.
No company should be forced to operate in an unhealthy business environment, and no insurer should be required to take unnecessary risks. But State Farm’s latest double-digit rate-hike request comes after two years in which Florida has been spared a hit by a major storm. State regulators should consider all relevant information, not just selected data, when considering this rate-hike request.