Competition will bring cheaper, better property insurance
May 20, 2009
The three most significant ways to reduce property insurance premiums are 1. Increased competition; 2. Shared risk; and, 3. Reduced losses.
The most direct way to reduce losses is to harden one’s home. The manner in which risk is shared is through the policyholder’s deductible – the higher the deductible, the lower the premium. The No. 1 factor to lower premiums is increased competition.
One of the more important bills to pass the Florida Legislature this spring was a measure that will give our state’s citizens more choices for insuring their homes and encourage the big private insurers to start writing policies in our state again.
The "consumer choice" insurance bill – House Bill 1171 – represents a welcome step toward stimulating new free market competition in our troubled homeowners’ insurance market. It won overwhelming support in the Legislature, passing the House 105-13 and the Senate 27-9.
Now it’s time for Gov. Charlie Crist to allow this common sense legislation to become law.
The Legislature took necessary steps to strengthen two over-exposed state entities – Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund – to help reduce the threat that state taxpayers will have to bail them out after a major storm.
Just as significantly, legislators took a big step toward injecting new free market sensibilities into our homeowners’ insurance system by passing the consumer choice bill.
HB 1171 allows a narrowly defined group of large private insurers, who must meet stringent capital requirements, to offer homeowners’ policies at a market-based rate. Every other aspect of these consumer choice policies will continue to be regulated by the state Office of Insurance Regulation.
About 20 large, well-known and financially strong private insurers currently qualify to offer such policies. This will allow Florida to entice back companies with a track record of great customer service – especially after natural disasters – and to attract billions of dollars in new private capital to our state.
The bill also will allow consumers to decide for themselves whether they want to pay a market rate to have their home protected by a large private insurer who they actually know and they trust will be there if a storm strikes.
Why create this choice for consumers? In recent years, we’ve watched as one major insurer after another announced they were leaving Florida because they weren’t able to charge a rate needed to cover their risk for the coverage provided.
We must reverse this exiting trend. With more underwriters in the market, we can continue to reduce the state owned Citizens Property Insurance Corporation to the insurer of last resort as it was intended initially.
Governor Crist and my legislative colleagues deserve credit for the positive steps they’ve taken to make Citizens temporarily available to more homeowners who need it, and for encouraging about 40 entrepreneurs to launch new private insurance companies in our state. But we need to augment this good effort by bringing back the big carriers.
HB 1171 includes important consumer disclosures and protection provisions. Consumers would have to sign a form stating that they voluntarily selected a consumer choice policy and were given shopping comparisons. There are no hidden surprises. The marketplace will be the prominent pricing factor, not government.
There’s really no downside. Consumers get new choices and peace of mind. Florida gets new private market competition and much needed private capital. Taxpayers face less risk in our state-created insurance entities.
I hope Governor Crist will sign this bill into law.
State Sen. Garrett Richter represents District 37, including parts of Lee and Collier counties, and chairs the Senate Banking and Insurance Committee.