Property insurance shams
Demand transparency, then talk deregulation
News-Journal editorial March 20, 2010 12:05 AM
Posted in Editorials
Officially, Florida’s property-insurance industry is regulated by the Office of Insurance Regulation. Insurers have to justify their property-insurance premium rate increases to gain approval from regulators. In reality, regulation is superficial, often resembling the shell game insurers play to hide profits, deny coverage then complain that they need to charge higher rates to stay in business. Legislators, led by Bill Proctor, R-St. Augustine, are attempting to do away even with the pretense of regulation.
Take the game insurers play with their affiliates. Regulators examine the ledgers of insurance companies when they determine whether a rate hike is justified. Regulators should examine the ledgers of those companies’ affiliates. They don’t. By law, they’re not allowed to. Insurers channel millions of dollars to those affiliates to deflate the size of their own profit margins, pretend that they’re hurting for business and win rate increases. It’s all legal. It’s no less of a sham.
As the Sarasota Herald Tribune reported following a yearlong investigation, when insurers add the millions they pay out to affiliates to the millions they pay out for reinsurance, overhead and “management” costs (Floridians pay 50 percent more for insurers’ overhead than the national average), those insurers have little left to pay out in claims. But they have plenty of lobbying power.
Last year, the state’s property-insurance industry wanted regulations waived for big private insurers. The industry claimed that deregulation would attract more big companies to the state (or keep them here), providing more competition that would, eventually, lower premium costs for consumers. But Florida isn’t lacking for insurers. Some 200 companies, 70 of them Florida-only, cover the private property-insurance market in the state. (State-run Citizens covers 1.3 million policies, making it the largest in the state.) Rates haven’t been going down, but up.
Deregulation isn’t likely to change that, or to ensure that when calamities strike, insurers won’t claim poverty and dump their policies on the state. Proctor’s bill proposes that insurers be allowed to raise rates annually by up to 15 percent without regulators’ intervention. It would also reverse a provision the Legislature approved in 2006, when lawmakers required insurers to pay full replacement costs for property repairs or purchases upfront. Proctor’s proposal would let insurers withhold up to 60 percent of replacement costs until the work on a property is completed.
Backers of the proposal, which passed the House Insurance, Banking and Financial Affairs Policy Committee by an 11-3 vote, claim it balances insurers’ needs to be more actuarially sound with consumer interests. If there is balance in the proposal, we don’t see it — not when consumers are socked with the near-certainty of annual premium increases coupled with the withholding of payments when disaster strikes. Proctor’s bill is a blank check to insurers, asking virtually nothing in return.
In light of the Herald Tribune investigation, lawmakers should be in a better position to demand stronger regulations, not weaken them, beginning with greater access to insurers’ books. When insurers do file for rate increases, they provide analyses to the Office of Insurance Regulation based on much data regulators may not examine firsthand. Shell games insurers play with their affiliates and management firms to hide profits are mostly hidden. Insurers may claim they’re not able to stay in business without rate increases. But it’s their word against consumer interests. Insurers’ words win almost every time.
The insurance industry claims that many insurers couldn’t pay claims should a disaster strike based on current rate structures. That may be true. But it’s only half the story when at least part of the reason insurers say they couldn’t cover claims is because they’ve raided their own claims’ pot to pay dividends, perks and bonuses. The proposal making its way through the Legislature addresses only the sob half of the insurers’ story. So, does a different bill in the Senate that would increase insurers’ take by reducing discounts for homeowners who build in more protection into their properties. Either way, consumers lose. And that’s before disaster strikes.