Sink: Regulatory approach on policies has changed
The Florida Cabinet will discuss property insurance regulation changes that one member called a `fundamental shift in strategy.’
BY NIRVI SHAH
Changes in the way property insurance is regulated in Florida will be discussed at a meeting of the Florida Cabinet on Tuesday.
Late last month, state Chief Financial Officer Alex Sink demanded answers about some recent moves by Insurance Commissioner Kevin McCarty that she said represented a “fundamental shift in strategy with regard to the regulation of property insurance companies.”
McCarty said the moves were best for the industry — in the long run — because they would help stabilize the troubled Florida insurance market.
The issues, which were disclosed in letters between Sink and McCarthy and will be discussed Tuesday, include:
• Sink questioned why insurance companies in Florida no longer have to hold on to policies taken out of state-run Citizens Property Insurance for at least three years.
Allowing the companies to drop some of these policies means their reinsurance costs become more manageable, McCarty wrote, keeping them in the market and on more solid financial ground.
But it also means about 32,500 homeowners will be dropped by their insurance companies over the next year, he wrote.
• Sink asked why McCarty told insurers they no longer have to buy reinsurance that would cover damages from a 1-in-100 year storm.
Based on a review of reinsurance data, McCarty said the Office of Insurance Regulation found that when all insurers must buy protection that would pay for a 1-in-100 year hurricane, it can be bad for insurance companies because sellers charged high rates and were unwilling to negotiate.
And, he said, insurance companies may be better off with reinsurance plans that pay in the event of less catastrophic hurricanes — because companies wouldn’t be forced to drain their reserves to meet their reinsurance deductibles.
“The Office has focused its financial stress tests to ensure companies have the financial wherewithal to handle a series of storms in addition to measuring their capability to fund the proverbial storm of Biblical proportions,” he wrote.
• Sink asked if there were any companies found to be impaired or insolvent in the last year that were allowed to continue writing new policies or renew existing policies.
McCarty said no, adding that Northern Capital was only allowed to renew policies after a Feb. 19 notice, in part to keep a potential buyer interested in the company.
Insurance agents have said they were selling Northern Capital policies until the day before the state found the Miami company insolvent last month. Despite state supervision for nearly a year, the company failed and will be dissolved by the end of this month.
“Some have criticized the Office for not informing the public earlier about insurers experiencing financial problems,” McCarty wrote, echoing his own comments to the Cabinet in the past.
“Similar to the banking industry, under the laws of Florida some of the Office’s regulatory work is, and should be, confidential as to not cause the proverbial `bank run’ by policyholders or frightened potential investors,” he wrote.