Florida Insurance Commissioner Denies Travelers Companies’ Rate Filing

The Florida Office of Insurance Regulation has issued the following news regarding the denial of The Travelers Companies, Inc. submitted rate filing.

Should you have any questions or comments, please do not hesitate to contact this office.

 

Florida Insurance Commissioner Denies Travelers Companies’ Rate Filing

TALLAHASSEE, Fla. (12/21/2007) – Florida Insurance Commissioner Kevin McCarty today announced the denial of rate filing submitted by The Travelers Companies Inc. (Travelers). The Office of Insurance Regulation (Office) sent Travelers a Notice of Intent to disapprove after determining that the filing was not actuarially justified and lacked supporting information.

Travelers had originally proposed a statewide average rate increase of 4.6 percent for its homeowners business in Florida based on a computer-generated hurricane loss model which was not approved by the Florida Hurricane Loss Projection Methodology Commission. The Office’s review of the filing showed that Travelers’ rates should actually decrease by a statewide average of more than 11 percent.

“Our actuaries determined that the increased rates Travelers is seeking cannot be justified or supported by the traditional rules of loss estimation,” McCarty said. “Using data from an unapproved hurricane model to justify the need for a rate increase is unacceptable.”

The unapproved model considers only the previous five years of hurricane losses rather than 100 years or more of loss history considered by the more traditional risk models. Models that now use only the past five years of hurricane loss data include the catastrophic losses from the unprecedented eight back-to-back hurricanes during the 2004 and 2005 hurricane seasons. The inclusion of this data in the model’s calculation of losses results in extremely high estimated losses, as compared to spreading the risk over the past century. The Office determined that the rate filing also used an inappropriate application of Florida’s own Public Hurricane Model to show a need for increased rates.
 
Earlier this year, Travelers’ decreased its rates by a statewide average of 8.3 percent in response to legislation passed during January’s Special Session which provided less expensive reinsurance from the state. Insurance companies buy reinsurance to cover catastrophic losses, like those often caused by major hurricanes that exceed what they could pay out on their own.

The four Travelers companies included in the filing are Travelers Indemnity Co., First Floridian Auto and Home Insurance Co., Travelers Indemnity Co. of America, and Phoenix Insurance Co.

Statewide, the Travelers companies insure approximately 75,000 residences, and collect $132 million in annual premium.

In December, the Office has issued 33 Notices of Intent to disapprove rate filings to 47 companies as part of its ongoing commitment to carefully review every filing in order to ensure that Florida consumers are not getting rates that are excessive, inadequate or unfairly discriminatory. Special legislation passed this year offered companies reinsurance at a reduced rate and required them to pass the savings along to their policyholders.

The Office will continue to determine, on a case-by-case basis, whether a company’s rates are excessive and whether an official Order will be issued to reduce rates.