The Drama Continues Over Florida Homeowner Insurance Costs

It appears some of Florida's largest insurer carriers tried to use loopholes in the new insurance law to bypass the requirement that they pass on reinsurance savings to homeowners from the state- backed financial safety net fund. And, that's just one of the conclusions many lawmakers came to Tuesday after two days of Senate hearings on compliance with the law passed last year to help deal with Florida's ongoing property insurance crisis. Insurance executives were called to testify under oath why their companies didn't reduce premiums after changes in the new law gave them access to cheaper state backed storm reinsurance coverage and mandated they pass the savings on to consumers.

The hearings were just the latest battle in a long feud between state government leaders and the property insurance industry over policy pricing. On January 17th, Insurance Commissioner Kevin McCarty suspended the Illinois-based Allstate Corp. after he abruptly halted a scheduled two-day hearing in frustration over what he called the company's failure to comply with a subpoena to produce pricing records. A lower court stopped the suspension on Jan. 18, and McCarty appealed. In the ruling issued late Wednesday, the state's 1st District Court of Appeals gave regulators 40 days to submit all paperwork and written arguments supporting their decision to suspend the insurance giant's licenses. McCarty sees the court's agreement to expedite the process "as a positive thing, that they want to get to the bottom of the issue," and if the stay is overturned, the suspension would apply to all types of insurance sold by Allstate's 10 insurance companies doing business within the state.

With the annual legislative session starting in March, lawmakers said they will consider fixing the loopholes that insurance carriers are using to circumvent last year's law. A glaring example of such a loophole is the fact that the law didn't explicitly indicate methods insurers could not use to predict risk and set policy prices. Last year, insurers, such as Allstate Floridian Insurance Co. and Nationwide Insurance Co. of Florida, based rate increase requests on storm risks over the next five years instead of the customary 100 years. "This is the single most significant issue that we've heard," said Steve Geller, co-chairman of the Senate Select Committee on Property Insurance Accountability, formed last month to hold insurers accountable for rate cuts that legislators pledged to the state's homeowners last year. "If we simply resolved that issue, I think we'd resolve half the disputes we're having."

State insurance regulators and legislators said they thought modeling issues had been addressed after Hurricane Andrew in 1992. That's when the insurers said they needed computer models to help predict future risks. While state law doesn't explicitly prohibit insurers from using the models, the approval for allowing their use was to predict risks in the long term and thus level out drastic premium fluctuations in the short term.

Another issue lawmakers may want to review is whether to clarify a state law enacted in 2006 that allows insurers to earn "reasonable profits." State insurance regulators have recommended insurance companies use a 3.7 profit margin – not including income earned on investments – to calculate property insurance prices. But executives from companies such as Allstate Floridian, Nationwide, and Hartford Insurance Co. of the Midwest testified that they used profit margins of 15% or more to calculate rate requests last year.

Some senators said they think the law passed last year will work as long as regulators continue rejecting proposed rate hikes by the carriers. Others are not so sure. The Senate committee is considering continuing its hearings to discuss findings and recommendations. And, if there's time before the February 29th deadline for final drafts of new bills, the committee might ask rating agencies, risk predicting companies, and reinsurers to also testify about their relationships with the insurance industry.

And, so it goes with Florida's insurance crisis. Just when you think some relief might be in sight, the drama (and excuses) continues.

For information on insurance coverage in Florida, please visit our homeowner's insurance guide or contact us at Gulf Coast Associates, Realtors®. We'll be happy to assist with any questions you may have.

• State-Operated Price Comparison Website
• Florida Office of Insurance Regulation

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