Florida Insurance Commissioner Reviews State’s Insurance Market On Talk Show

Florida Insurance Commissioner Kevin McCarty was the recent featured guest on Florida Face-to-Face, a statewide broadcast weekly talk show on the Florida Channel in which government officials are interviewed. 

This week’s discussion with Commissioner McCarty included an update on successful 2009 insurance-related legislation, State Farm Florida’s proposed withdrawal from the property insurance market, affordable health insurance coverage for Floridians, and other related matters.  To view an archived webcast of the interview, click here.

In an overall evaluation of Florida’s property insurance market, Commissioner McCarty assessed the State’s exposure at $2 trillion, although he indicated that Florida currently is “in very good posture” to absorb the costs of damages from a large storm.  In order to continue to attract capital for claims payment and to rebuild after a catastrophe, he predicts “necessary” modest rate increases.

Following up on an inquiry made to him during the July 28 Cabinet meeting by Florida Chief Financial Officer Alex Sink, he explained that, since 2007, 40 companies have either added a line of business or been authorized to do business in Florida.  Eighty-five percent of these insurers were surplus lines carriers.  Commissioner McCarty emphasized that, even after experiencing $36 billion dollars in storm damage over the last few years, Florida is still attracting new capital. 

“We need to strike a balance,” Commissioner McCarty explained. “By over-regulating you have the potential of scaring away new capital.” 

Commissioner McCarty lauded the Governor’s veto of HB 1171, which would have deregulated insurance rates in Florida for certain large property insurers, while likely effecting significant rate increases without addressing capacity.  According to Commissioner McCarty, nothing was ever provided by State Farm to indicate that it would maintain its property insurance business in Florida if the bill had been signed.  Rather, the company said it would only re-evaluate its situation.  In prior rate increase requests, adequate evidence had not been provided to substantiate approval. 

“It’s not like we are afraid to give rate increase if the company can justify it,” Commissioner McCarty said.  “State Farm did not make that justification and we were concerned about profiteering off Florida’s citizens.” 

The Commissioner related that the Florida Office of Insurance Regulation (“OIR”) is in close discussions with State Farm officials on how the company should withdraw its property insurance business from the State.  The OIR’s conditional approval of State Farm’s exit plan included a prohibition on using Citizens Property Insurance Corporation (“Citizens”) as a warehouse to transfer the resulting exposure.  The OIR also wants State Farm agents to be able to broker with other companies. Commissioner McCarty summarized the State Farm issue by saying they have not been able to reach an agreement on the conditions. 

“(State Farm) has continued to say that they are leaving the state and I take them at their word,” Commissioner McCarty said.  “I think it is going to be difficult for State Farm to continue to market life insurance and auto without having a presence in the property market.” 

The use of credit scoring as a tool to determine insurance rates was briefly addressed in the discussion.  Commissioner McCarty said that the OIR has taken issue with the practice because of its discriminatory impact on a protected class of people.  Increasing numbers of people have adverse credit scores because of the current state of the financial markets.   

Looking forward, Commissioner McCarty expressed continued concern about the ability of the Florida Hurricane Catastrophe Fund to issue bonds.  A federal guarantee would be needed for these bonds.  However, he suggested that the Federal Government would only participate if Florida were to default on the issue.  Meanwhile, the OIR is working with Florida’s State Board of Administration and federal officials on a national catastrophe plan.

Commissioner McCarty also noted Citizens “significant” role in the stability of Florida’s property insurance market.

Commissioner McCarty, who chairs Florida’s Health Insurance Advisory Board, also said that the State will respond to “whatever Congress does in health insurance.”

Should you have any questions or comments, please contact Colodny Fass.

To unsubscribe from this newsletter, please send an email to ccochran@cftlaw.com.