Merry Crist Mess

Not all deregulation measures are good; some are a mixed blessing. Consider HB 1171 that passed the Florida House and Senate and was sent to Gov. Charlie Crist, a regular critic of the industry who was reportedly hesitant to sign it. By the time this is published, Crist may have vetoed it. He may also have announced he running for the U.S. Senate. If both things happen, the insurance industry should be pleased.

HB 1171 would create a special category of property insurers that would be free to offer policies at unregulated rates. Not every insurer would qualify under HB 1171 — only certain large writers. Can you spell State Farm? Farm Bureau?

Supporters hope that the rate freedom would convince State Farm to reverse its decision to exit the state and possibly convince other larger national carriers to take a fresh look at Florida.

Realistically no other large carriers are likely to be enticed back into the Florida market based on this one move. For one, carriers that might be tempted would have to forfeit access to some of the low cost reinsurance the state offers, with resulting higher reinsurance costs eating away the gain from charging higher rates. The idea had more potential when there was a possibility all voluntary market polices would also be free from assessments by Citizens but that related provision was stripped from another bill.

The Professional Insurance Agents of Florida (PIA) urged Crist to sign HB 1171, while the Florida Independent Agents Association (FAIA) took a more cautious approach, not wanting to oppose deregulation but cognizant that this particular bill has its problems for agents.

PIA said the bill was better than nothing.

“This bill isn’t THE answer to any of our problems but it potentially opens the door to more creative thinking about possible other solutions. It’s arguable that the measures proposed here will have any effect at all but we have to be open to letting the market solve its own problems if we ever hope to get away from the idea that insurance can be managed by legislation,” PIA of Florida CEO Mark O’Connell told Insurance Journal.

But there is good reason for agents to hold back on lending their support.

As FAIA told its members, while HB 1171 presents an opportunity to lure back State Farm, it’s not clear the big writer would act the way the bill’s supporters hope: “We are told, and quite frankly believe, that State Farm will raise its rates on the coastal policies it doesn’t want, favorably price business it wishes to retain, and undercut the competition on more desirable inland policies. Meanwhile, State Farm agents would likely place the company’s undesirables with Citizens, potentially bypassing the private market that may otherwise wish to write many of these policies. To a slightly lesser extent, this could happen with Farm Bureau as well.”

The possibility of such a scenario unfolding is what makes HB 1171 a bad bill and an invitation, not to private carriers to write business, but to politicians to get “creative” next year to fix the new mess. Why not hold out for deregulation that promises to benefit all players and insureds, not just a few? Perhaps the climate for better reform will improve after Crist goes to Washington.