Bills seek pricing deregulation on home insurance policies
South Florida Business Journal – by Oscar Pedro Musibay
A controversial bill that failed to deregulate rates for Florida’s largest home insurers last year has been expanded to include all home insurance providers in the coming legislative session.
Credits afforded to consumers for hurricane shutter installation and other storm-related mitigation is sure to spark more contention for bills in the upcoming legislative session, as insurance companies continue to push back against a measure they say is undercutting their stability. The debate is not so much about non-wind coverage, such as fire and theft.
State Sen. Mike Bennett, R-Bradenton, is the sponsor of SB 876, which would allow rate hikes on homeowner policies across the board. The bill was filed in December and on Jan. 14 was referred to the following committees: Banking and Insurance; General Government Appropriations; and the Policy and Steering Committee on Ways and Means.
The accompanying legislation, HB 447, has been referred to the Insurance, Business & Financial Affairs Policy, and the General Government policy council committees.
The push for unregulated rates for companies such as State Farm, with $500 million in reserves, was met last year with a pushback from some consumer advocates, including the Consumer Federation of America and the Florida Public Interest Research Group. Those groups complained that higher rates would hemorrhage individual homeowners financially and make the stalled economy worse.
Robert Hunter, director of insurance at the Consumer Federation of America, said Florida residents, who are already dealing with high unemployment and rising foreclosures, cannot afford to pay more. He said his own daughter is considering relocating out of the state because of the already high cost of living in Florida.
“What if there’s another hurricane and everybody starts saying ‘We want a 500 percent rate increase’?” he asked. “Do you think the state will allow that to happen?”
But, without appropriate rate increases, insurers will continue to struggle financially and might not be there to pay claims when hurricanes cause damage in the future, the Florida Association of Insurance Agents Maintains.
The FAIA, which supports the rate hike bill, held a press call Jan. 13 to use data from a study to make its point. FAIA CEO Jeff Grady said that 73 private companies write 98 percent of Florida’s residential policies. Of that number, nearly half recorded underwriting losses through the third quarter of 2009.
In South Florida, homeowners have two hurricane-related homeowner policies, with state-run Citizens providing wind coverage to most homeowners and a private insurer providing other coverage. In some parts of Florida, one company provides both coverages.
FAIA Executive VP Scott Johnson said that the 73 companies the association cited offer all kinds of policies including fire and theft. The FAIA is not specifically saying that the underwriting losses nearly half experienced in the third quarter were tied to hurricanes. He emphasized however that the premiums these companies are charging are not enough to allow them to be in the black without a major hurricane, a reality which will be made worse when the next storm strikes.
He said the Florida Office of Insurance Regulation’s December approval of State Farm’s 14.8 percent rate increase should be a model for what other companies should be allowed to do. Advocates for insurance companies that provide homeowner coverage also assert that the state’s effort to cap rates has created a hostile environment for insurers, which is not inviting to new companies.
Gary Reshefsky, senior VP at MDW Insurance Group, said allowing State Farm’s rate increase was an encouraging move for the industry. It could be a sign that the state might be shifting toward making the market more hospitable for existing and new companies to operate.
Johnson said he also expects the mitigation credits issue to boil over into legislation, but the shape of the bill is still unclear. He said the Florida Commission on Windstorm Loss Projection Methodology is required to make a recommendation on the mitigation program. Its report is due Feb. 1.
He said the commission already has put a spotlight on a host of problems with the mitigation program’s execution that reaffirm his organization’s point that the credits are destabilizing to the industry.
The Consumer Federation’s Hunter said the mitigation program should be examined thoroughly and fixed where there are problems, but some form of mitigation is still necessary.
“Mitigation credits ought to be proper,” he said. “If someone has to spend money to make buildings safer, they should get some relief.”
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