Insurance Reform is needed in Florida
Published Friday, March 5, 2010
by Joe Shea
Floridians are caught between the devil and the deep blue sea when it comes to the insurance industry. While we have had aggressive regulation of pricing by the State Insurance Commissioner in the past few years, we have had enormous insurance industry losses due to the 2004 hurricanes, with the result that a large number of healthy insurers have left the state’s homeowners without reliable coverage. Inevitably, smaller players less able to take their place and meet their obligations have prospered in the vacuum left behind.
That quandary was admirably pointed out in an investigative report that ran Sun., Feb. 28, on page 1 of the Sarasota Herald-Tribune. The reporters found that at least 38,000 homeowners have policies with companies the state and industry believe are going to fail soon, and at least 100,000 homeowners have policies with companies that meet at least one of three criteria for the likelihood of failure. There are companies out there with not so much as a Website, phone number or contact name, doing business legally with a Florida license. Dozens of companies – 48 have been identified – have little more than the required $4 million reserve, and couldn’t even cover a house fire, much less hurricane losses. Homeowners banking on them for coverage if disaster strikes are going to be sorely disappointed.
Meanwhile, our Manatee County-based state legislators have been working to remove any limits from what larger insurance companies can charge homeowners for insurance. Last year, State Sen. Mike Bennett introduced such legislation, which Gov. Charlie Crist vetoed last year. This year, State Rep. Bill Galvano, an attorney, has introduced the same proposal, and Bennett is backing it in the State Senate. We may not know the outcome of the legislation until sometime around midnight on the day the legislative session comes to a close, as hundreds of unread and ill-considered bills are rushed to the floor for last-minute passage when, they hope, journalists are not watching.
You might well make the point that if insurance rates were not capped, the companies with no real reserves beyond the required $4 million could attract larger premiums and perhaps set themselves on a sounder footing. But wouldn’t it make a lot more sense to require insurance companies to have reserves that are a fixed percentage of their premium liabilities? But what that would really do is bring the big companies back to the table. On average. companies like Allstate have reserves of about $4,000 per policy; the smaller firms have reserves on average of about $750 for each home. The larger insurers would raise their rates – also, admittedly, their certainty of covering losses – while the smaller ones would either vanish or be devoured by the big fish. Their uncovered losses would become the liability of the state’s insurance guaranty fund, which may prove to be underfunded, too.
The entire insurance industry, however, is in crisis. Under pressure for reform, the firms often try to exaggerate losses and demand inflated premium increases, hoping they will get at least a portion of what they ask for. As in the health care business, where insurers may be charged $1,000 for a toothbrush, $53 for an alcohol wipe, $140 for a single Tylenol and for 41 IV bags at $23 each when they only use one — as CNN just revealed. They are also taken advantage of by homeowners who want more than they deserve for their losses. Some insurers, like State Farm, have just walked away from their homeowner business, preferring to maintain automobile insurance policies that are required by lenders and the state. Here, drivers are a captive audience, and the income is vast.
Because no hurricane has hit Manatee County since early in the last century, the $15,000 a year my homeowner’s association pays for insurance has been essentially wasted; had we started a self-insurance program 10 years ago, the $150,000 we’d have piled up in reserves would go a very long way to fixing any issues associated with hurricane damage to our 32-unit building. Instead, we have thrown the money down on the altar of the great god Insurance, where it bursts into flame. In my estimate, however, the believers are diminishing in number and many are becoming skeptical of the value of their needless sacrifices.