There’s a lot insurers do not like in Florida’s property insurance fix

Legislators rolled up their sleeves, ripped off their ties and unbuttoned their collars as a special legislative session on property insurance came to a head in Florida.

After six days of conferring, negotiating and cajoling, they came to bipartisan agreement on a measure that promised to make some policyholders happy at least for awhile but caused insurers to question whether they would stay in the market.

The final measure (CS/HB 1A) contains several provisions of concern to the private insurance industry whose representatives warned that the short term fix could result in fewer insurers willing to write in the state and more insurance woes in the long run. One troubling provision for insurers permits Citizens Property Insurance Corp., the state insurer of last resort, to compete more with private insurers. Another requires that insurers writing private passenger automobile insurance in Florida, and homeowners policies in other states, write homeowner’s coverage in Florida starting Jan. 1, 2008.

The new legislation also grants private insurers temporary access to extra reinsurance through the Florida Hurricane Catastrophe Fund, a tax exempt reinsurance alternative for insurers operating inside Florida’s borders. It mandates that private insurers pass along to policyholders any savings in reinsurance, which some estimate could be 20 percent.

Gov. Charlie Crist was expected to sign the bill into law.

“The Florida Senate set out to solve the insurance crisis with everyone’s help, without raising taxes, and with immediate and future rate reductions,” Senate President Ken Pruitt’s said. “Thanks to the incredible work of dedicated legislators and our professional staff, we have met our goals for the people of Florida.”

Insurers did not share in the congratulations. Cecil Pearce, vice president of the American Insurance Association’s Southeast office, said the most notable negative effect will be the one thing the governor wanted to avoid — lack of competition in the Florida homeowners insurance market. He said the new bill will actually chase competition out of the state.

“There is very little good news for the private insurance market in this bill,” Pearce said. “The bill overall is problematic, and discouraging for the private market. Although some earlier provisions were either removed or weakened, it’s still a bad bill.”

Coastal policyholders of Citizens are being promised premiums savings of from 5 percent to 40 percent. Some of that relief will come because the law reverses a Citizens 25 percent rate increase that took place Jan. 1, 2007, and blocks any additional hikes for all of 2007. It also delays until 2008, the requirements that Citizens impose up to a 10 percent of premium assessment in the event of a deficit.

CS/HB 1A authorizes Citizens to provide commercial coverage statewide and to write multi-peril policies in addition to wind-only policies. Lawmakers also hope some property owners, including businesses, will also save by buying more coverage or just the wind portion of coverage from Citizens — or not buying wind coverage at all.

AIA pointed out minor victories for insurers in the legislative skirmish. Florida only subsidiaries are still allowed; profits of the parent don’t have to be factored into rate-making; arbitration and use and file are not repealed for good — just through 2008. But in AIA’s estimation, the ‘bad’ outweighs minor victories.

Neil Alldredge, vice president of state and regulatory affairs, National Association of Mutual insurance Companies, singled out the provision requiring insurers that write homeowners insurance in other states to write the same coverage in Florida as “not only absurd, but maybe unconstitutional as well.”

Sen. Bill Posey, the lead Senate negotiator on the insurance legislation, told The Associated Press that it was an idea that sounded good to consumers and it was being pushed by Crist.

Insurers also criticized several other provisions including one requiring the CEO or CFO to attest in a signed statement that the information accompanying a rate filing is true; the suspension of the “use and file” approval option for insurers until Jan. 31, 2009; and a requirement that claims be paid within 90 days.

AIA’s Pearce said most of these changes will require system modifications, which will increase the cost of doing business.

“The bottom line is that Florida has just reinforced its reputation as one of the most overregulated insurance markets in the country,” said Pearce.

Thomas J. Tierney, president, Property and Casualty Insurers Association of America, criticized the legislators for taking “the state down a dangerous path that will ultimately undermine the state’s economy and lead to reduced choices, more uncertainty, and higher prices — in either premiums or taxes — for all Floridians.”

“In a desire to find rate relief for homeowners, Florida lawmakers may have unwittingly enacted bills in their respective chambers this week that are possibly illegal and certainly will do nothing to keep some insurers from wanting to leave the state,” said NAMIC’s Alldredge.

“You can’t have nearly two trillion dollars in coastal exposure, restrict actuarially sound rates and expect insurers to stay in the market. It’s a solution that is not going to work,” he said.