Senate bill pressures home insurers

A variety of measures would tighten state control in an effort to restrict rate increases.

Aaron Deslatte
Tallahassee Bureau
Orlando Sentinel–Mar. 26, 2008

TALLAHASSEE

The Senate Banking and Insurance Committee on Tuesday advanced a package of changes to keep pressure on insurers and extend the reforms enacted last year to lower homeowner premiums.

The plan, spearheaded by incoming President Jeff Atwater, R-North Palm Beach, would permanently ban the industry practice of charging higher rates before the state approves them. It does away with an arbitration panel used by insurers to plead for higher rates.

It also restricts the types of computer models insurers can use to justify higher rates and requires them to get state approval before dropping customers.

And it would raise fines on insurers for intentionally thwarting state rules from $20,000 to $100,000 and freeze premiums for the 1.3 million policyholders in Citizens Property Insurance Corp. for another year.

Keeping the Citizens rate-freeze intact, though, drew a prickly response from lawmakers still upset with last year’s reforms that increased the number of policyholders in what has become Florida’s largest insurance company.

Many are coastal homeowners unable to get coverage from the private market. But should Florida face a Katrina-sized hurricane, both Citizens and the state-run Hurricane Catastrophe Fund could have to sell as much as $27 billion in bonds to pay claims.

Since neither entity has the revenue to pay off the bonds, thousands of dollars in assessments would be tacked onto premiums for a variety of insurance policies statewide, from auto and renters’ to homeowners who aren’t in Citizens.

"Our state is faced with a lot of uncertainty right now. People are losing jobs. They’re losing their homes," said Sen. Al Lawson, D-Tallahassee, who joined Sen. J.D. Alexander, R-Winter Haven, in voting against the measure (SB 2860). "They really can’t afford to subsidize the wealthy in this state."

Atwater said there were signs that more private carriers were willing to take on Citizens policies, and the freeze was intended to smooth the transition as the state gradually tries to shrink its storm risk.

"This is not a perfect solution. It’s just the best one we know," said Senate Banking and Insurance Chairman Bill Posey, R-Rockledge. The bill passed 6-2.

Also Tuesday, House Speaker Marco Rubio said the Citizens rate freeze should be kept in effect another year.

Although his members have vented their frustrations in a series of House Insurance Committee meetings, it may be "very politically difficult" not to keep rates frozen, said Rubio, R-West Miami.

"The last thing people who are getting higher tax bills, higher gasoline bills, higher electric bills need is a higher insurance bill."

The Legislature, however, must start encouraging more private competition and hurricane-hardening of homes, he said. "I think you can do some of the short-term things the Senate wants, but lay the groundwork for some of the long-term reforms," he said.

"You can’t keep this system in place. It will eventually catch up with us."

The Senate panel also unanimously advanced a proposal (SB 2156) to shed some of the state’s hurricane risk.

The centerpiece of last year’s insurance reform was to sell an additional $12 billion in backup insurance coverage to private carriers, meaning the state would owe that much more to carriers if a major storm struck. The thought was that insurance companies would save money by buying cheaper state coverage and cut their rates by about 25 percent. Instead, the average rate cut has been just 15 percent, with many larger companies actually seeking to raise rates.

The committee passed a plan championed by Chief Financial Officer Alex Sink to reduce that re-insurance by $3 billion, potentially raising rates by 1 percent to 3 percent.

The plan has bipartisan support in both chambers. Lawmakers are increasingly skittish about the potential cost to all policyholders if a Katrina-sized storm struck and the state had to issue billions in bonds to pay claims.