Fla. insurance chief: Rate increases may be needed
By BILL KACZOR
Associated Press Writer
TALLAHASSEE, Fla. — Companies offering hurricane and other property insurance coverage may need to raise rates because they’re losing money, even though Florida hasn’t had any serious storms in the past couple years, the state insurance commissioner said Tuesday.
Commissioner Kevin McCarty told Gov. Charlie Crist and Florida Cabinet members, who oversee McCarty’s office, that 84 companies writing policies in the state had underwriting gains in the first six months of the year compared with 102 that had losses.
"There are only two alternatives: Increasing rates, which is really just affecting the symptom, or looking back at the core problems and what can be done," McCarty told the panel.
He later said it may take a combination of both.
"We clearly have to have companies that are writing homeowners’ insurance in Florida that make money," McCarty said. "Otherwise their appetite to continue to do business will go away."
Crist, who has led the charge to reduce rates, paused when asked about McCarty’s statements.
"We’ll see," Crist said. "Hopefully most of them don’t" raise rates.
Crist also pointed out rates have dropped an average of 16 percent during the past 36 months.
McCarty said some cost-drivers are outside the state’s control, including backup coverage called reinsurance that companies purchase on the global market. Losses elsewhere around the world have driven up reinsurance costs, he said.
Jim Massie, Florida counsel for the Reinsurance Association of America, later said rates for the backup coverage actually have declined but costs are up because companies are buying more of it.
Other factors include rising fraud, duplication in applying discounts to some policies, the expense of investigating sinkhole damage claims and the worldwide recession.
Dealing with some issues will require legislative action on the state or national level, McCarty said. He has been pushing for a national plan similar to Florida’s Hurricane Catastrophe Fund that provides additional backup for insurance companies.
Coastal states from Maine to Texas are having the same problems as Florida, McCarty said.
"Large companies are managing their exposure," he said. "That’s a code word for they’re not writing on the coast."
McCarty also provided the panel with figures on 29 new companies recruited in the past couple of years to help take up the slack from a planned pullout by State Farm Florida. The state’s largest private homeowner insurer, State Farm has about 700,000 policies.
Of 21 new companies currently writing policies, only six had underwriting gains while 15 had losses in the first six months of the year, McCarty said.
Older companies, though, are expected to pick up the bulk of State Farm’s policies, McCarty said.
He also warned it’s not unusual for new companies to lose money because of startup expenses.
"Companies do fail," McCarty said. "That’s the reality we live in."
He said his office will try to make the transition smooth through mergers and acquisitions or receivership.
McCarty said he’s also still trying to negotiate with State Farm to keep the company in Florida even at a smaller size.