McCarty: Property insurance relief has just begun

Florida Insurance Commissioner Kevin McCarty issued the following opinion piece, as published by the Florida Insurance Council.

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Property insurance relief has just begun  

By KEVIN McCARTY
FLORIDA VOICES

In January, the Legislature instituted broad-based reforms providing rate relief for Florida’s homeowners. Industry and regulators, alike, identified the cost of unregulated global reinsurance, or backup insurance, as the primary culprit leading to rate increases. The Florida Legislature directly addressed this problem by enhancing the Florida Hurricane Catastrophe Fund to provide more reasonably priced reinsurance and to overhaul the Citizens Property Insurance Corp.

We have just completed the first step to lowering insurance premiums in Florida. Insurers were required to file predicted savings based on the Legislature’s reforms by March 15. As a baseline, we contracted with national reinsurance experts who predicted an average rate decrease of 24.3 percent, although they noted larger insurers will have less savings since they already had more favorable reinsurance contracts. To date, the results have been positive as 323 companies have filed for rate decreases ranging from single digits up to 40 percent.

Yet, in speaking with my fellow Floridians, I sense there is great confusion and even disappointment in these reforms. I read one news article that asserted: The insurance nightmare is back! This is disingenuous. The process of rate relief has just begun.

Certainly, the governor and the Legislature would have preferred to implement rate relief immediately, but legal and constitutional considerations required safeguards to preserve the rights of policyholders. Reinsurance contracts are usually for 12-month cycles as are homeowners insurance policies, which require time to implement changes. The critical step to ensure premium savings are passed along to policyholders will occur Sept. 30, after the “true-up” filing. At that time, all insurers will have purchased their 2007 reinsurance and FHCF coverage, and we can directly calculate the savings. If insurance companies have not honestly calculated their expected savings on March 15, additional savings will be mandated.

There is one insurance nightmare that has returned, which was widely anticipated by the Legislature: Florida-only affiliates of large national insurance companies have resumed dropping thousands of policyholders. This cannot be stopped other than by mandating continued coverage that would not only permanently damage the insurance marketplace, but face serious legal constitutional challenges.

The governor and the Legislature have wisely sought to encourage private sector investment in Florida by not attempting these draconian measures, but instead by “fixing” the Citizens Property Insurance Corporation. Due to the recent legislative reforms, people who cannot find reasonable replacement coverage can now find coverage with the “new” Citizens Property Insurance Corporation. I say “new” because everything about Citizens has been or is being improved: the rates, the service and the rules.

Before the recent reforms, Citizens’ rates were required to be the highest in the state. The Legislature changed this requirement and, in addition, rolled back Citizens’ rates by 21 percent on average — and also rescinded a 58 percent rate hike scheduled to take effect in 2007.

Additionally, Citizens has filed an additional 14 percent rate decrease that will be retroactive to the first of the year — which means lower rates or refund checks to thousands of Citizens’ policyholders. Due to these reforms, Citizens policyholders’ rates will be roughly half of what they would have been.

The reporter who wrote the insurance nightmare is back also quoted Gov. Crist as saying, “We have a message for the people of Florida: ‘help is on the way.’ ” This was true, and is still true, but this process cannot be completed overnight. Let us not forget, that until the Legislature’s recent reforms, insurance companies were requesting rate increases annually in the 30 percent to 80 percent range with no relief in site. On March 15, this trend was reversed as 323 insurance companies filed an average rate decrease of 19 percent.

Rate relief is essential for the economic security of Florida families. Both the governor and Legislature understand the delicate balance — we must provide rate relief without inflicting permanent damage to the competitiveness of the insurance marketplace. Within these constraints, we have accomplished this objective. For some, relief will arrive in their mailboxes in about a month. For others, it will arrive in the weeks and months that follow. And for the hundreds of thousands of Citizens’ policyholders — relief is already here.

McCarty is Florida’s insurance commissioner.