Insurance bill tests Gov. Crist
“One of the things that I don’t want to see happen is an unfettered opportunity to raise property insurance rates.” – Gov. Charlie Crist
By LLOYD DUNKELBERGER H-T Capital Bureau
Published: Saturday, June 13, 2009 at 1:00 a.m.
Last Modified: Friday, June 12, 2009 at 8:22 p.m.
TALLAHASSEE – The early and ardent promise from Gov. Charlie Crist to hold down property insurance rates will be tested in a bill that arrived on the governor’s desk Friday.
The bill would let major property insurance companies, including State Farm, sell residential property insurance policies that would be largely free from standard state rate regulation. In essence, the companies could basically charge whatever they want.
And it would likely mean a return to huge increases from companies such as State Farm, whose rates in Florida have risen more than 520 percent since 1992.
Insurance companies say removing the regulatory barrier will help stimulate Florida’s property insurance market.
If Crist vetoes the bill, its supporters say the decision could add uncertainty to an insurance market where the state’s largest private insurer — State Farm — is trying to shed more than 800,000 residential property policies and the government — in the form of Citizens Property Insurance — is now the largest insurer of homes in the hurricane-prone state.
Signing the bill would mark a reversal from the dramatic early days of the Republican governor’s administration, when he used his popularity to win approval from lawmakers for a sweeping insurance package that rolled back property insurance rates.
Since Crist took office in 2007, State Farm has not received a single rate increase from state regulators, and instead has been ordered to make three decreases totaling nearly 10 percent. Crist has added fuel to the fire by labeling some of the state’s insurers "outrageously greedy."
Crist has a June 27 deadline for acting on the bill.
"One of the things that I don’t want to see happen is an unfettered opportunity to raise property insurance rates," Crist said.
Crist said his property insurance reforms have worked.
"The average reduction of rates since we reformed property insurance over two years ago is about an 18 percent decline across the state," Crist said.
With that in mind, Crist said he was viewing the rate deregulation bill "with a jaundiced eye."
As to whether vetoing the bill will accelerate State Farm’s withdrawal from the market and lead to more national companies reducing their coverage in Florida, Crist noted some 40 new companies have come into Florida over the past few years.
"One may leave but 40 have come in and I think that gives more power to the consumer and it’s the power of choice," he said.
Either way Crist goes on the bill, it will have reverberations in a property insurance market that in the next few months will be at the peak of the annual hurricane season.
Proponents of the bill say giving insurance companies the option of offering policies with little rate regulation will provide an incentive for State Farm and other major national companies, such as Nationwide, Liberty Mutual and USAA, to remain or even expand their coverage in Florida. They argue a "free market" approach will give consumers more choices and keep rates in check since customers can move to other companies if they don’t like their rates.
Currently, the national companies, including State Farm, account for about 20 percent of the residential policies, with newer Florida-based companies holding 40 percent of the market and Citizens claiming 30 percent.
Supporters of the bill warn if the veto results in further reducing the share of the major companies, it will force more Floridians into the newer insurance companies or Citizens, which would have to be supported by tax dollars or assessments on statewide insurance policies if it runs into a deficit as it did after the 2004-05 hurricane seasons.
"I find it difficult to accept that Citizens, 40 new companies and what is likely to be a remnant of national companies comprise an adequate homeowner’s insurance program, nor do I believe that such a program can be established in the absence of well-capitalized national companies competing on the basis of ’market-based’ pricing," Rep. William Proctor, R-St. Augustine, said in a letter to state insurance regulators earlier this month.
Proctor, along with Sen. Mike Bennett, R-Bradenton, sponsored the property insurance bill during the recent session.
State Farm officials, who continue to negotiate with state regulators on their plan to withdraw from the property insurance market, said they have made no commitments based on the governor’s action on the bill.
Chris Neal, a spokesman for the company, called the bill "a step in the right direction" but said the insurer was still looking for "transformational" and "permanent" change in the way Florida handles insurance rates.
During the session, company officials testified that the state’s rejection of a 47 percent rate increase last year was one of the factors in the company’s decision. Officials also said State Farm Florida, the company subsidiary that serves the state, was losing $20 million a month and could become insolvent in the next few years due to a range of factors, including the lack of recent rate increases, the mandated rate rollback in 2007, costly discounts for homeowners who strengthen their homes against wind damage and the cost of reinsurance.
State regulators countered that the state has granted the company rate increases that cumulatively total 523 percent since 1992 — when Hurricane Andrew struck South Florida. They also said one of the factors in the company’s financial condition was the decision to buy $500 million worth of backup insurance from its parent company.
And in a letter raising major objections to the bill, state Insurance Commissioner Kevin McCarty asserted that even if the bill became law, State Farm "is overexposed in the homeowners market and will likely not offer coverage to many of its policyholders irrespective of its freedom to charge an excessive rate."
"In fact, State Farm and other companies may actually use excessive rates to effectively non-renew policyholders under the ruse of consumer choice," McCarty said.
He additionally warned that the bill would "reverse the trend" set by the governor in the early days of his administration.
"The result will likely be significant and unpredictable rate increases that, during these difficult economic times, people can simply not afford," he said.
McCarty’s criticism drew the anger of one of the bill’s sponsors, with Sen. Bennett demanding that McCarty resign or be fired for misleading lawmakers about the insurance regulators’ view of the bill.
Bennett said the rates would not be "unregulated," noting the companies still had to comply with other rate provisions relating to such things as solvency and discrimination.
"It’s wrong to say insurers will be able to ’charge whatever they want,’" Bennett said. "Rather the rates will now be regulated by the market, not the state. If insurers hope to sell any of these consumer choice policies, they will have to price them at an amount people will buy."
But Crist has gone out of his way to support McCarty, signaling the likely fate of the insurance bill.
"I think you know how much I think of Commissioner McCarty and the great work that he has done to protect consumers and fight for them and really stand in the breach to be sure that somebody is there to stop the rise in rates," Crist said.