Bill May Push Up Insurance Rates
Property premiums in play as lawmakers tweak last-week legislation.
By Lloyd Dunkelberger
Ledger Tallahassee Bureau
Published: Wednesday, April 29, 2009 at 12:01 a.m.
Last Modified: Thursday, April 30, 2009 at 1:14 a.m.
Your property insurance rates may be rising based on decisions Florida lawmakers will make in the next two days.
Major property insurance proposals in the Legislature:
Allowing Citizens Property Insurance to increase its rates annually by 5 percent or more. The House favors up to a 20 percent increase; the Senate has backed a 5 percent hike.
Reducing the size of the state hurricane catastrophe fund from $28 billion to $16 billion.
Allowing private insurance companies to recoup some of the cost of having to buy reinsurance from private sources rather than the state-backed CAT fund.
Allowing larger property insurance companies, like State Farm, to offer insurance policies that can offer higher rates not subject to review by state insurance regulators.
But here is what’s at play:
Customers of the state-backed Citizens Property Insurance could face a rate hike up to 5 percent, or perhaps as high as 10 percent.
(Citizens Property Insurance Corporation had more than 10,500 active policyholders in Polk County at the end of 2008, according to the most recent data from the Florida Office of Insurance Regulation. That made Citizens the second-largest insurer in Polk behind State Farm.)
Customers of private insurance companies might see as much as a 10 percent increase in their base premiums to allow the companies to recoup the cost of buying reinsurance from private sources rather than relying so much on the state catastrophe fund.
Customers of some of the larger property insurance companies, like State Farm, may be offering new policies that would not be subject to most rate regulation by the state.
For some critics, lawmakers are taking the wrong steps. Sen. Mike Fasano, R-New Port Richey, said the Legislature should be looking to help consumers financially as they face hard economic times.
Instead, he said lawmakers are being forced to consider bills that likely will result in higher insurance costs.
"Sadly, we’re doing nothing but taking up bills that increase their premiums," Fasano said.
But proponents say lawmakers are taking steps that ultimately will save Floridians money by financially strengthening Citizens, which is now the state’s largest property insurer, and reducing the size of the state hurricane catastrophe fund.
If those steps are not taken, supporters say taxpayers will ultimately have to back up those funds with tax dollars or insurance policy assessments if Citizens and the CAT fund can’t pay their claims after a major hurricane.
Rep. Bryan Nelson, R-Apopka, sponsor of the House bill (HB 1495) to increase Citizens’ rates and to reduce the CAT fund, said the state-backed insurer needs to have rates at "actuarially sound levels to prevent Citizens from going bankrupt."
He also said the bill allows the state to "gradually" raise Citizens’ rates.
The House has limited those increases to no more than 20 percent per policyholder per year, while the Senate supports a 5 percent annual cap.
Negotiators say a likely compromise would be in the range of 10 percent.
Additionally, Nelson and other supporters of the legislation point out that if lawmakers fail to act in the next few days, Citizens’ two-year-old rate freeze is scheduled to end on Jan. 1, which could result in the company’s seeking an rate increase in excess of 40 percent – although it would be subject to review and approval by state insurance regulators.
"Don’t forget what will happen if they don’t" pass a bill, said Sam Miller, a spokesman for the Florida Insurance Council.
Miller said the insurance industry also strongly supports the bill because during the next six years, it will reduce the $28 billion CAT fund by $12 billion and "begin to make the CAT fund real again."
Fasano, who supported a continuation of the Citizens rate freeze, said he accepts the argument that lawmakers need to act on Citizens to avoid potentially larger rate hikes.
But he said he objects to efforts to use the bill to allow other private insurers to increase their rates.
Under the House bill, insurers could raise their rates by a statewide average of as much as 10 percent under a "flex rating plan" that would not be subject to rate review by state regulators.
Fasano said the legislation should be a bill aimed solely at Citizens but it is becoming "more of a bill that helps the private insurance companies and that’s wrong."
Another major insurance bill (SB 2036) – that has passed the House and is awaiting a Senate floor vote – could also increase rates for customers of some of the largest private insurers in the state.
The bill would let companies like State Farm, which has filed to withdraw from the Florida property insurance market, and other similar companies offer policies largely free from rate regulation.
Proponents say the measure would help revive the state insurance market and give consumers "a choice" in accepting policies from major insurers or seeking policies from Citizens or newer, smaller Florida-based companies.
"The bill will allow Florida’s consumers to choose for themselves what they’re willing to pay to have their home insured by a company that they know provides good customer service and has the capital to pay their hurricane claims," said Rep. Bill Proctor, R-St. Augustine, sponsor of the House bill.
State Insurance Commissioner Kevin McCarty criticized the bill this week, saying it would "very likely yield substantial and unpredictable rate increases."
"I can assure you that the companies who seek to take advantage of the proposal are not going to reduce their rates if this bill passes," McCarty said in a statement. "They will almost assuredly increase the rates they charge in Florida."