COLUMN: Where the rate hikes are
By Randy Schultz
Palm Beach Post Editorial Page Editor
Sunday, August 16, 2009
When it comes to charging customers more, Florida’s property insurers and agents are like spring break men seeking spring break women: They just don’t give up, no matter how bad the chase makes them look.
This pursuit has gone on for years, but it kicked up last fall, after regulators and a judge rejected State Farm’s 47 percent statewide rate increase request. Last spring, the largest insurers tried to get around the regulators by asking for no limits on what they could charge policyholders. The Legislature obliged. Gov. Crist vetoed that bill, but the other big insurance bill gave companies their new opening.
Since 1995, Florida has had something called the Commission on Hurricane Loss Projection Methodology. Try that for a conversation-starter at the gym or the barber shop. Insurers base rates on how much a certain storm could damage a certain part of the state. The higher or lower the projected damage, the higher or lower the rate.
Insurers use computer models to calculate those projections. Previously, companies had guarded those models like Coca-Cola guards its formula. So, regulators had to trust the companies that projections were not excessive. Trust insurance companies? Because of that 1995 law, insurers must use models approved by the state.
This year’s bill that Gov. Crist signed requires the Commission on Hurricane Loss Projection Methodology to review the stormproofing discounts. The first meeting on the subject took place last week, and the commission must report by the start of the legislative session in March.
Since 2002, the state has made stormproofing a priority and tied it to insurance: stronger homes, less damage. In 2006, the Legislature approved $250”million for inspections and improvements related to hurricane protection. The state has jawboned insurers since 2005 to make clear how much customers can save by, among other things, installing shutters and reinforcing garage doors. In 2006, the state increased the discounts. Lots of Floridians applied for them. State Farm at first expressed strong support.
But now, the insurers say that the discounts cost too much. State Farm blames discounts – not the stock market crash that ravaged the company’s finances – for its rate request. The Florida Association of Insurance Agents commissioned a "white paper" and claims that the discount program has "fallen short" because of regulators’ "singular focus on cutting premiums at any cost." And there’s fraud. Homeowners are getting undeserved discounts.
Last month, State Farm dropped its good-customer discounts, which will raise overall premiums about 28”percent. Only the Office of Insurance Regulation can let companies drop discounts for storm protection. But the Legislature, based on what the commission reports, could end all mitigation discounts. That would jack up premiums around the state and be self-defeating – why stop rewarding people for protecting their homes? – but don’t be surprised if the insurance industry pushes for it.
The Association of Insurance Agents report deals with such issues as building codes and certification of inspectors. Much of it is technical. But the conclusions are clear: Stormproofing discounts are excessive, and some are going to people who don’t deserve them.
Ideally, the commission will be more objective and focus any recommendations on ways to keep the discounts while weeding out any fraud. Customers, of course, know all too well what the property insurers want from them. And if it happens, they won’t be there in the morning.