Insurers tussle for muscle in clash over bill

The following article was published in the Palm Beach Post on March 22, 2011:

Insurers tussle for muscle in clash over bill

TALLAHASSEE — A property insurance bill being pushed by Governor Rick Scott and the insurance industry took a hit Tuesday as it moved forward in the Senate, but even its opponents suspect the setback will be temporary.

Opponents say a key goal of the bill is to make it harder for property owners to get their claims paid, but Sen. Mike Fasano, R-New Port Richey, was able to block that aspect of the bill on a narrow 7-5 vote by the Senate Budget Committee.

The rest of the bill, however, passed the committee on a 12-8 vote, and it still contained the other major goal of the industry: doing away with the current requirement that insurers provide sinkhole coverage.

Rates will continue to rise if “rapidly increasing non-catastrophic sinkhole claims … and requiring Florida insurance companies to pay out claims based on replacement cost instead of actual cost value like most other states remain,” the Florida Property and Casualty Association said in a prepared statement supporting the bill.

Fasano’s amendment, however, removed the so-called “actual cost value” clause, which would have allowed insurers to withhold payment on claims until property owners provide receipts showing they have made repairs to a home or have replaced the covered contents that were damaged or destroyed.

State law requires insurance companies to pay at least a portion of claims upfront .

But even Fasano doubted his change would remain in the final version.

And the bill’s sponsor, Sen. Garrett Richter, R-Naples, didn’t disagree.

Asked whether Fasano’s change might yet be reversed, Richter said, “The bill itself is pretty much like changing the tire on a moving car. I believe there will be a lot of debate and discussion on the floor when the bill gets to the floor.”

Richter said his bill (SB 408) is needed in order to stabilize the insurance market in Florida and attract more companies to the state, as others are fleeing, even with a five-year respite from catastrophic storms.

“We’ve got companies that are going out of business. We’re trying to attract more companies. If we want to responsibly lower premiums, then we … spread the risk more,” said Richter, who said he has worked closely with Scott’s office in crafting the measure.

Opponents called it one of the worst proposals for consumers in more than a decade. A top priority for insurers, it includes several changes vetoed by Gov. Charlie Crist last year, including the elimination of a state requirement that property insurers provide sinkhole coverage.

“It’s a disaster,” Fasano said.

Insurance industry representatives said insurance companies need to be able to withhold claims payments to do away with the incentive for policyholders to pocket payouts instead of making repairs on their properties.

Gerald Wester, a lobbyist for the American Insurance Association, told the committee the policy decision was a philosophical one based on “whether you believe in a partial loss that an individual should use that money to repair that building or should they use that money for a different purpose.”

Consumer advocates argued that it is aimed at reducing the amount of payouts for insurance companies because many people can’t afford to replace items or do repairs without receiving the claims payment first.

“If you can’t pay upfront, you can’t get the work done and they won’t have to pay,” said Bill Newton, executive director of the Florida Consumer Action Network.

Insurance representatives said the sinkhole exclusion is needed because those claims are often fraudulent and are causing rates to rise for all policyholders.

Sinkhole claims have tripled over the past four years, and insurers in Southwest Florida are paying $17 in claims for each $1 they collect in premiums, Richter said.

He said he believes insurers will provide the coverage even if they are not required to, but conceded his bill still lacks a comprehensive solution to the sinkhole problem.

Scott, who campaigned on overhauling property insurance, said Tuesday he supports deregulating the industry.

“We’ve got to look at what regulation is doing to cause rates to be higher. We’ve got to look at how long somebody has to file a claim – does that increase your cost? The sinkhole issue – does that increase your cost?” Scott said. “We’ve got to make sure that insurers want to do business in our state. We can’t ultimately guarantee and cover everybody’s insurance as taxpayers. That’s what I’m concerned about.”

Asked where his proposal would cause premiums to increase, go down or remain the same, Richter said, “Anybody who thinks they can live in Florida and not have significant premiums thinks they can live in Rochester, New York, and not shovel snow.”

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