News & Updates


New plan woos big insurers

H-T Capital Bureau
Published: Tuesday, April 14, 2009 at 1:00 a.m.
Last Modified: Monday, April 13, 2009 at 11:49 p.m.

TALLAHASSEE – Less than three months after State Farm, the state’s largest private property insurer, announced it was abandoning the Florida market, legislators are trying to woo the company back with a bill that would allow significant rate increases with few regulations.

A House budget committee will take up the bill today that would allow State Farm and other large private insurance companies to sell a new form of residential property insurance largely free from state rate regulation.

The idea is that some consumers might opt for the higher-cost, less-regulated policies if it means they can stay with companies like State Farm, which says its inability to win a major rate increase from state regulators is forcing it to leave Florida.

State Farm says it likes the plan, but would not say whether it will be enough for it to change its decision to leave Florida in two years.

What is clear is that the legislation signals a further retreat from the dramatic rate controls led by Gov. Charlie Crist two years ago. It is also a sign that as a new hurricane season looms a little more than a month away, state officials are still scrambling to find answers to providing insurance coverage.

When State Farm announced it was pulling out, Crist responded: "They probably charge the highest rates in the state anyway. Floridians will be much better off without them."

But others are concerned that if State Farm leaves, residents will be dependent on either state-backed Citizens or on smaller companies that might not be able to pay off if a major hurricane hit.

The House bill limits the new insurance policies to companies that have at least $500 million in surplus funds — which would only be a handful of the larger companies like State Farm. But a similar Senate bill (SB 2036) has a broader definition that could allow other major companies to qualify, such as Nationwide, Liberty Mutual, Hartford, Travelers and USAA.

Mark Delegal, a State Farm lobbyist, said his company was looking for a "transformative change" in the way state regulators view insurance companies that are exposed to major storm risks without being able to raise enough premiums to pay claims "when the wind blows."

In that regard, Delegal said the House and Senate measures easing the regulatory hold were "good bills."

But Delegal said State Farm has not made any commitments about keeping its property insurance policies in Florida, even if the legislation does becomes law — noting federal anti-trust laws prohibit such actions.

And the move is already facing criticism from the state Office of Insurance Regulation.

Ed Domansky, an OIR spokesman, said state regulators understand the need to help make Florida a more competitive insurance market, but he said the regulators have to balance that against the impact on consumers.

"The intent is good, but in the end, deregulation on the top end of the current rate review process will lead to dramatic increases in rates," he said.

Delegal said the momentum for the legislation is coming from State Farm customers who say they are willing to pay a little higher premiums if it means they can stay with a company that has provided coverage for some of them for decades.

Delegal also said many State Farm customers were surprised to learn that when they sought similar coverage from other companies or Citizens, they faced rates that were double or triple their State Farm rates.

A major insurance agent group said the legislation has merit.

"Any measure that allows rates to adequately reflect risk rather than political expediency has to be seriously examined," said Bob Lotane, a spokesman for NAIFA-Florida. "We cannot sit by while well capitalized and highly rated firms look to partially or fully exit the market, leaving Floridians more exposed to incalculable assessments on their insurance policies."

But rate regulation is only one of the critical debates facing state lawmakers and the governor as the May 1 deadline of the annual legislative session nears, followed by the June 1 start of the hurricane season.

Lawmakers are also advancing bills that would let Citizens, which insures more than 1 million Floridians, increase its rates by 10 percent or more and would reduce the state hurricane catastrophe fund by some $12 billion, likely also triggering another rate increase for many Florida consumers.

Meanwhile, Crist and the Cabinet members face a more immediate problem of what to do with the catastrophe fund, which has the potential for an $18 billion deficit in the upcoming season. The Cat Fund is essentially insurance for the insurance companies, sold at less than market cost by the state. But Florida has badly underfunded the plan and that could mean disaster if the state is forced to pay off.

A bid to win a backup plan from the U.S. Treasury has faltered, leaving state officials with more costly options, including floating a pre-storm bond issue, buying some type of backup insurance from the private market or seeking another type of financial guarantee.