A setback for major insurers as Crist vetoes bill
By LLOYD DUNKELBERGER H-T Capital Bureau
Published: Thursday, June 25, 2009 at 1:00 a.m.
Last Modified: Wednesday, June 24, 2009 at 8:26 p.m.
TALLAHASSEE – In a move that could accelerate State Farm’s decision to leave the Florida property insurance market, Gov. Charlie Crist on Wednesday vetoed legislation that would have let State Farm and other major insurers offer policies largely free from rate regulation.
Major insurance companies and businesses had urged Crist to support the bill, arguing that it could help revive Florida’s struggling property insurance market, could lead to State Farm reassessing its decision to shed 800,000 residential policies and could prevent more Floridians from seeking coverage from Citizens Property Insurance, the government-backed company that is now the state’s largest insurer.
State Farm officials said the governor’s decision means they will proceed with their plan to withdraw from the property insurance market over the next two years.
Since the company — which is the state’s largest private insurer — put in for a 47 percent rate increase last year that was rejected by state regulators, the Florida-based subsidiary has lost about $200 million in its net worth, said Chris Neal, a State Farm spokesman.
Crist said he vetoed the bill because it would reverse a trend of rate stabilization that began in 2007 when the governor won legislative approval for new laws limiting the ability of property insurance companies to increase their rates.
"This will likely result in significant and unpredictable rate increases that, during these difficult economic times, people can simply not afford," Crist said in his veto message.
Crist also dismissed the proponents’ claims that the bill offered consumers a "choice."
"On the contrary, the bill actually gives the ’choice’ to a select group of property insurance companies and allows them to decide who they are willing to sell a non-regulated policy," Crist said.
He said the bill would put the smaller Florida-based property insurers at a competitive disadvantage to the larger companies — like State Farm, Travelers and Liberty Mutual — since they could not offer the less-regulated policies.
Crist also said the bill provided no guarantees that the major insurers would not increase their rates "and then leave the marketplace with Florida’s hard working families’ earnings."
In a joint statement, Sen. Mike Bennett, R-Bradenton, and state Rep. William Proctor, R-St. Augustine, who sponsored the legislation, said they were "deeply disappointed" by the governor’s decision.
The lawmakers said the legislation would have given consumers the "choice" of buying a policy from "a large, financially strong private insurer" or opting for policies offered by the smaller Florida firms or Citizens, which now insures more than 1 million Floridians. They said the bill was intended to provide an incentive to major private insurers to bring "their desperately needed private, claims-paying capital back to our state."
Proctor said Florida remains in "a very precarious situation" if a major hurricane were to strike the state.
"How do we pay for it?" Proctor said. "No one will answer that question."
Lawmakers have not ruled out an override of the governor’s veto — which would take a two-thirds vote by the House and Senate. But overrides in the Florida Legislature in recent years have been extremely rare.
Crist’s decision drew praise from some consumer groups and Florida-based property insurers. The Florida Property & Casualty Association, which represents many of the newer Florida-based companies, said the legislation would have allowed the larger companies to "cherry pick" their coverage by providing expensive policies in high-risk areas but offering more affordable rates in lower-risk areas.
The group said the bill would have "diminished affordable choices" for consumers and put more Floridians into the state-backed Citizens company. Robert Hunter, a former Texas insurance commissioner and the head of the Consumer Federation of America, said Crist "did the right thing" in vetoing the bill.
"This bill was an invitation to insurers to game the Florida regulatory system and abuse consumers," he said.
Business groups sharply criticized Crist’s decision.
"Our governor has earned recognition thus far in his administration for artificially limiting the cost of property insurance in Florida, but today he has taken a turn for the worst with his veto of (the bill)," said Barney Bishop, head of Associated Industries of Florida.
Bishop warned that without the option of more policies offered by major national insurers, "hundreds of thousands of homeowners will have to switch to a thinly financed insurance company they have never heard (of) that will charge them as much, if not more than, their current insurer."