Florida Homeowners Insurers Seek ‘Flex-Rating’ Up to 15%

Florida lawmakers are considering giving homeowners insurers more flexibility to raise rates.

The Florida Senate and Banking Insurance Committee recently approved a bill that would give homeowners insurers some latitude, allowing them to raise their rates without first getting approval from the state insurance department. The bill would let insurers increase their rates by a statewide average 15 percent above their current rate. The bill caps increases on individually policyholders so that their rates are no higher than twice the statewide average.

The role of the Office of Insurance Regulation (OIR) would be limited to reviewing the rates to see if they are inadequate or discriminatory.

Under current law, every property insurer in the state must make an annual rate filing with the OIR, which may either approve or disapprove the rates to ensure that they are not excessive, inadequate or unfairly discriminatory. Although lawmakers in recent years have streamlined the process, it can still take months to resolve the filings, especially if they are disputed.

Senator Alan Hays, who sponsored the bill, said that while the latest bill is no “magic-bullet,” it would bring more latitude to the market. “This is an issue of consumer choice that hopefully leads to a more competitive market,” he said.

Other lawmakers, however, are not so accepting of his view. Senator Eleanor Sobel (D-Hollywood) cast the bill as a “statewide experiment” that could leave residents confused over whether a rate is fair or not.

The debate over the measure amounted to a classic seminar on the virtues of free market capitalism as opposed to the need for state regulation over an industry defined by profit. In a contentious debate, supporters of the bill cast it as a means to attract more capital to the state, hopefully resulting in lower rate hikes, while critics cast the bill as an automatic annual cost increase to policyholders.

Mark Delegal, representing State Farm Insurance Co., spoke in favor of the bill and rebutted charges that the alternative rate-making process would lead to a market out-of-control. “To say this is wide-open deregulation is wrong,” he said. “Right now there is no cap on what you can ask. If you decide to take this fork in the road you are imposing your own limits.”

Others, however, said there is no justification for changing the current rate making process. Jeffrey Farmer, speaking for the trial lawyers’ Florida Justice Association, warned lawmakers they are being hoodwinked by an industry that hasn’t suffered any significant losses in five years. “Sometimes, they have to pay claims,” he said.

Complicating the market equation is the state-backed insurer Citizens’ Property Insurance Corp. In 2009, lawmakers capped Citizens’ rates so they could only rise by 10 percent annually. If a significant portion of the industry institutes rate hikes it could lead to an exodus from the private market to the Citizens, which already has 1.3 million policyholders. Some lawmakers are hoping that they can lessen the chance of more policies going into Citizens by requiring Citizens policyholders to sign-off on a form indicating they understand the potential assessments and surcharges they could face in the event of a deficit. Citizens’ policyholders are on the hook for a surcharge of up to 15 percent and an emergency assessment of up to 10 percent.

Senator Gwen Margolis (D-Miami) said Citizens is already a big enough problem and the prospect of higher rates in a state whose economy was dependent on growth is enough to lose her support for the bill. “I am very concerned that people are no longer coming to Florida anymore because it’s too expensive,” she said.

The bill would also require insurers to accept more liability and beef-up their ability to pay claims. Insurers would not be allowed to buy temporary increased reinsurance coverage from the Florida Hurricane Catastrophe Fund and they would have to have the financial backing to cover a 100-year probable maximum loss by January 2015.

On a parting note, Hays urged lawmakers to once again take up the mantel of supporting a more open market. “This is the land of the free, the home of the brave, where we have freedom of choice,” said Hays. “It is an insult to consumers of this state to say you can’t have the choice under this bill.”