Insurers not Impressed with Florida’s Revamped Insurance Package

Insurance Journal--May 5, 2008

While many Florida lawmakers claim to be opposed to gambling, they don’t mind taking a chance on Mother Nature.

They rolled the dice again on May 1, signing off on a new insurance bill that does little to alleviate Florida’s risky stakes in the marketplace, according to industry executives and many lawmakers. A big piece of the legislation extended a rate freeze for another year for the state-backed Citizens Insurance’s 1.2 million customers, many who already enjoy rates not available in the private market.

“Citizens is getting deeper in the hole,” said Sam Miller, vice president of the Florida Insurance Council, an industry group. “They clearly don’t have the money now to pay its claims if we have a hurricane.”

Senators passed the bill (SB 2860) on a 33-5 vote after brief debate on May 1, several hours after it passed in a late night House vote. It now goes to Gov. Charlie Crist, who has strongly supported some measures in the bill, including tougher regulatory measures in dealing with an industry he has accused of “gouging” Floridians.

While giving the state more authority over insurance companies, measures in the bill mean all residents with a car insurance or homeowner policy would be assessed if a catastrophic storm hit Florida and the state was unable to meet its financial obligations.

“We’ve made a conscious decision to accept the risk,” said Jeff Atwater, R-North Palm Beach, who sponsored the bill.

Also in the bill: increasing from $1 million to $2 million the maximum price of a home that can be covered under Citizens.

That move worries the state’s chief financial officer, Alex Sink, who is concerned about covering the more expensive homes because that means the state takes on more risk. Sink has also warned about the potential for Citizens’ policy owners to face a dramatic premium increase once the moratorium on its rates expires, spokeswoman Tara Klimek said May 1.

The measure, however, does provide incentives for new companies to enter the lucrative but risky Florida market by offering low-interest loans for companies willing to start up here.

“Having Citizens be the largest the insurer in the state was never a goal,” said Sen. Jim King, R-Jacksonville. “We’ve got to figure out some ways to make it competitive enough that people buy it out.”

After eight hurricanes in 2004 and 2005 the state has gone two years without a serious storm damaging the state. Lawmakers and insurers alike are hoping for at least one more quiet hurricane season – especially in an election year.

“You’re going to see lower rates,” Atwater said.

The bill also is tougher on insurers. It doubles maximum fines for insurers that violate state law. By abolishing arbitration panels it also makes it harder for insurers to hike rates after being denied those increases by state regulators. And it requires insurers to use models approved by the state when setting rates.

Moreover it extends by one year, to January 2010, a provision from last year’s insurance bill that requires insurers to get state approval before raising property insurance rates. Insurers must also notify regulators 90 days before they can drop more than 10,000 homeowner policies in one year.

Regulators have battled with private insurers in the 16 months since the Legislature expanded its Hurricane Catastrophe Fund to $28 billion with the overall intention of lowering premiums for consumers.

But fewer than one in five Floridians have seen lower rates, infuriating some lawmakers and Crist, who made lower taxes and lower insurance rates the centerpiece of his successful 2006 campaign.

Since lawmakers passed the bill last year with the goal of lowering rates, the Office of Insurance Regulation has denied dozens of requests by private companies for rate increases.

Lawmakers say they believe the new bill improves upon what was passed last year. Now they’re hoping the weather helps them out.

“The big wish is no hurricane again for another year,” King said.