Balance insurance reform: No free-market solution for a broken market
Unfortunately, the Legislature doesn’t want to revisit one of the most creative proposals for Florida’s property insurance problem. So consumers will have to hope that the Legislature tries to improve the current system in a way that doesn’t give all the benefits to the insurers.
Some legislators would “fix” the problem by letting all companies charge what they want. Bills have been filed in the House and Senate to deregulate property insurance. Gov. Crist, though, has made clear that he would veto deregulation, as he did last year. So the early action has centered around Senate Bill 2044, which has passed one committee.
The bill has good points. It would raise the minimum financial requirements for all insurers. For example, current law requires them to have at least a $4 million surplus. Under SB 2044, that amount would rise to $15 million. A separate law requires property insurers to have the means — through reserves, reinsurance and other financing — to pay claims from a one-in-100-year storm. The Office of Insurance Regulation has reported recently that several property companies are having financial problems, and the capitalization requirements haven’t changed since 1993.
Also, the bill would attempt to change the system that gives home-owners reduced premiums for hardening homes and businesses against storms. Such “mitigation credits” have been available since 1995, but in 2005 the Legislature required insurers to let policyholders know about all the discounts and how much homeowners could save with each protection, such as shutters, a reinforced garage door and roof restraints.
Now, the insurers claim that the discounts are too expensive and that some homeowners get discounts they don’t deserve. A task force made recommendations, such as raising the standards for inspectors. Reform in this area, where needed, makes more sense than deregulating rates.
Four years ago, Democrats proposed a new system for property insurance, with a state-run pool covering the first layer of claims — say, $30,000 to $50,000 — and private insurance picking up anything more. It was an alternative to Citizens, but never got a hearing, and Republicans still seem intent on market-oriented solutions for a market that doesn’t work because private companies have dumped so many policies.
That approach also depends on the insurers being straightforward. Usually, the industry repays every favor with another complaint. In 2007, it was reinsurance. Now, it’s discounts. And the industry wants to be able to raise rates if it adds such costs as higher commissions. The Office of Insurance Regulation opposes that.
The issue probably will come into sharper focus on March 23. The Office of Insurance Regulation will brief the governor and Cabinet on the financial condition of the 200-plus companies that write property insurance in Florida. Five weeks will remain in the legislative session. Obviously, Florida doesn’t need hurricane insurers that can’t afford to pay policyholders, but Florida also doesn’t need hurricane insurers that charge what policyholders can’t afford.