Mark Zabilowicz, Tampa Fl Realtor

Legislation that gives Florida regulators more authority over private property insurance companies sailed through the Senate on Wednesday, escalating the state’s ongoing battle with insurers.

Senators voted to end a practice of companies being able to increase customers’ rates before final state approval. The practice allows companies to start charging higher rates and then seek approval of the increase. If it’s denied, they have to refund the money, albeit not with interest.

The Senate bill (SB 2860) would also require that home and business owners’ claims are paid within 90 days if the company does not dispute the claim.

It also eliminates a loophole that allowed some companies to use models not approved by the state in setting their rates.

The measure also increases daily fines from $2,500 to $25,000 when companies fail to comply with the state’s insurance regulations.

“Before, the fines were almost meaningless,” said Sen. Bill Posey, a Rockledge Republican who chairs the Senate Banking and Insurance Committee. “It was more like swatting. Now it’s more like spanking.”

The legislation also takes $250 million from Citizen’s Property Insurance, the state-backed company, and makes it available as incentive money for new companies to take some of Citizens’ customers to reduce the state’s risk over time.

However, there is no exact companion measure in the House, which is considering two bills (HB 5003 and HB 5057) that are more industry friendly. The differences would have to be worked out before anything could go to Gov. Charlie Crist, who favors the Senate measure, which passed 32-7.

“I hope the House now will also see the importance of this legislation for Florida consumers and how it will enable my office to continue to ensure that companies are keeping insurance available and affordable,” Insurance Commissioner Kevin McCarty said Wednesday after the Senate bill passed.

Florida expanded its Hurricane Catastrophe Fund to $28 billion last year with the intention of making reinsurance available at a lower cost, with the goal of lowering premiums for consumers.

But fewer than one in five Floridians have seen lower rates, infuriating many lawmakers and Crist, who made lower taxes and lower insurance rates the centerpiece of his successful 2006 campaign.

Since lawmakers passed the bill last year with the intent of lowering rates, the Office of Insurance Regulation has denied dozens of requests by private companies for rate increases.

McCarty suspended Allstate from doing business in the state three months ago, but their agents have been allowed to keep writing new business while the dispute winds through the court system.

Private insurers began re-evaluating their business practices in Florida following Hurricane Andrew in 1992. The devastating back-to-back seasons of 2004-2005 made the problem even bigger. Allstate, for example, has dropped roughly 400,000 homeowners policies in the state in recent years.

Meanwhile, the state remains on the hook if it’s hit by a major hurricane this summer.

“The real crisis is whether Citizens, the CAT Fund and private insurers can timely pay claims after a major hurricane this year,” said Sam Miller, executive vice president of the Florida Insurance Council, an industry group. “Nothing in the Senate bill addresses that.”

Industry representatives believe lawmakers should be more concerned with Citizens, the state-backed company that now carries more than 1.25 million policies – far more than any of the private insurers.

Citizens has legislative authority to charge below-market rates, but would make up a shortage by assessing its policyholders, and in a catastrophic event everyone in Florida with an insurance policy whether it be homes, businesses, cars or boats would be charged.

Tampa Fl real estate

TALLAHASSEE, Fla. – Feb. 1, 2007 – Insurance reform legislation that passed last week shows what’s possible when lawmakers seek “ideas that help Floridians,” Gov. Charlie Crist said in a weekly newsletter sent to supporters.

“Help for the people of Florida is on the way! Help is on the way in the form of lower homeowners insurance rates for every Floridian,” Crist wrote Friday.

And it might work, too, unless the state gets hit by a strong hurricane in the next few years.

“We are screwed if that occurs,” said Senate Democratic Leader Steve Geller of Cooper City, one of the plan’s architects.

A few worst-case scenarios are tempering some of the enthusiasm over what Crist and others bill as a bipartisan triumph:

• What if Florida gets hit by a costly storm before it can build up a bigger, new public catastrophe fund, designed to lower premiums by relieving insurers of some risk?
• What if new rules against “cherry picking,” the practice of offering the most profitable types of insurance but not property insurance, send automobile insurers packing from Florida?
• What if a bulked-up Citizens Property Insurance Corp., the public insurer of last resort that’s now empowered to offer other types of insurance, steals customers from private businesses? 

Crist even added his own scenario, which he plans to address at a Cabinet meeting this morning: What if private insurers try to rush through rate increases now, while the reform plan is being implemented?

Crist has an answer for that one: offer an emergency ruling to prohibit policy cancellations and require rate changes to incorporate the new legislation.

Precarious ground

Insurance industry officials accept the reforms as a political reality but caution they put state finances on precarious ground.

The eight storms that hit Florida in 2004-05 created $36 billion in insurance claims. Insurers warn this could be a drop in the bucket if the right storm hits the wrong part of Florida.

They insist that Citizens’ premiums are irresponsibly low and won’t be able to cover all of its claims in a future storm. That could lead to another taxpayer-financed bailout such as the one approved in 2006 and more assessments on all insurance policies.

Floridians would also be hit with huge assessments on their property, auto and other insurance policies to cover any damages charged to the newly expanded public catastrophe fund.

Private insurers are responsible for the first $6 billion of payouts in a storm under the new reforms. The state’s catastrophe fund covers the next $16 billion. If additional claims remain, as in an especially powerful hurricane, a second tier of the public catastrophe fund covers the next $20 billion in losses. The state would have to issue bonds to finance all of that.

The goal is to save private insurance companies the expense of buying “reinsurance,” a form of institutional protection that spreads the risk of damages. This is an expense passed on to customers through their premiums.

A state fund, theoretically, can do it more cheaply than private insurance companies because it isn’t taxed and has no profit motive. Insurers who buy this lower-cost state coverage must pass the savings to consumers.  The catastrophic fund now has less than $2 billion.

No one disputes the cost estimates. But advocates of the reforms say Floridians were going to pick up the tab under the old system, too. Skyrocketing premiums and sharp increases in property taxes were starting to crimp the Florida economy, said Bill Newton, executive director of the Florida Consumer Action Network.

“People had to have rate relief,” he said. “The shock to folks was more than people could bear.”

Meanwhile, Citizens spokesman Rocky Scott acknowledges that some customers may seek coverage by the state-run insurer now that it can offer lower rates and insure other perils for less than the private companies they now use.  But Scott dismissed talk that the state might aggressively pursue the new business.

“We don’t have a sales force,” Scott said. “That would be hard for us to do. We don’t have agents. We’re not out there marketing.”

Citizens must file a business plan by March 1 detailing how it intends to bulk up its staff and apply the new latitude.

But homeowners will flock to Citizens with or without a sales force once they learn it may have cheaper premiums, State Farm spokesman Chris Neal said. Although Citizens was created to be a last resort, he predicted a migration from private insurance customers to the state.

“I’m just afraid what we’re seeing is the beginning of the end of the private maker, and everybody’s going to end up in Citizens,” Neal said.

Fewer concerns are being raised about a possible exodus of automobile insurers as a result of the “cherry picking” provisions. Companies selling automobile insurance in Florida now must offer property insurance, too, if they provide it in other states.

So far, no one has threatened to leave the state, Miller said. The new provision might discourage new companies from offering policies in Florida, Miller and Neal said.

Legislator criticizes changes

Nothing that passed last week encourages insurance companies to come to Florida or companies here to offer more policies, said state Rep. Dennis Ross, a Lakeland Republican and an insurance agent.

Encouraging such behavior is the only way to create long-term rate stability, Ross said.

It would have been better to offer subsidies to Floridians who couldn’t afford insurance premiums than to put the entire state on the hook if the state gets walloped, he said.

Ross was one of two legislators to vote against the reform bill. As a result, he was forced to resign last week from a House leadership post.

“I think time will prove me right,” Ross said. “There’s no question in my mind, I would not have been so steadfast in my opinion if I did not believe we would be the recipients of more storms for a prolonged period of time.”
 

Copyright © 2007 Tampa Tribune, Fla., Michael Fechter. Distributed by McClatchy-Tribune Business News. Tampa Tribune, Fla.

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TALLAHASSEE, Fla. – Feb. 7, 2007 – Citizens Property Insurance, cursed and dreaded since its inception, is becoming the lowest-cost coverage option for some homeowners.

The massive insurance reform bill that was passed last month allows homeowners covered by a private carrier to opt into Citizens if they’re paying rates 25 percent higher than what the state-run insurer charges.

And, under a ruling last fall that’s now in the law, Citizens customers don’t have to leave if they receive a notice transferring coverage to a private insurer that wants to hit them with a 25 percent or higher increase.

Steven Tate of Palmetto Bay, a Florida Peninsula policyholder, got a notice that his premium would jump from $3,200 to $9,000. Mitigation credits could save Tate about $2,000, but he already has two agents shopping Citizens for him.

“I’m sure there are a lot of people in the same situation as I am, who can’t pay this kind of money for insurance,” Tate said.

Citizens could end up with 700,000 more policies, according to the Office of Insurance Regulation, and agents all over Broward and Miami-Dade are fielding queries like Tate’s.

Gov. Charlie Crist was so adamant that the Citizens option be given to more policyholders that excluding that provision could have killed the insurance bill.

The 25 percent rate threshold, which the governor opposed, was passed as a compromise because some lawmakers were concerned about what a surge of new policies would do to Citizens operations.

“My indigestion with expanding Citizens has to do more with its quality of service than with its ability to lower rates,” says Rep. Dan Gelber, a Democrat from Miami Beach and House minority leader. He noted that Citizens was besieged with complaints about poor claims handling after the four 2004 storms.

Based on data from the insurance department, six companies have approved rates that on average are at least 25 percent higher than Citizens.

Eight other companies with rates at least 25 percent higher than Citizens – many of them at first formed solely to take Citizens policies – took advantage of a state law that allows insurers to begin charging a higher rate and then file for regulatory approval. If the increases are rejected entirely or partially, homeowners would be due a refund.

Since a ruling last fall, Citizens policyholders who got takeout offers from these firms could refuse to leave Citizens if the rates were 25 percent above what the state-run company was charging. The new law lets policyholders continue to do that and also lets anyone whose rates have climbed beyond the 25 percent-higher mark to join Citizens.

“It’s a bit of a sea change” for Citizens, says Bob Lotane, an insurance department spokesman, noting that Citizens is no longer just the insurer of last resort.

Indeed, the new legislation drops the requirement that Citizens peg its rates above the average charged by the 20 largest private insurers in the state.

Citizens also will be able to sell an entire policy, including windstorm, fire, theft and liability to homeowners in the state’s designated wind-pool area (generally east of I-95 and U.S. 1 in South Florida). The company must submit a business plan to state officials before it may proceed with that.

Citizens officials say the insurer will be able to handle the heavier policy load.

“Would this be an unexpected hardship? Hardly,” said Citizens spokesman Rocky Scott. “If they all came crashing in at one time, that would give us a problem. But policies renew once a year.”

Citizens officials say they don’t expect every policyholder to take the option. For one thing, some homeowners prefer to bundle auto, home, life and health insurance with one firm.

As it now stands, Citizens processed 55,000 new policies in January – just under 14,000 a week. In January 2006, the company lost 32,000 policies.

In the past 12 months, Citizens’ exposure has doubled to $418 billion from $209 billion. And with 1.3 million policies on its books, Citizens now stands as the largest insurer of homes and condos in Florida. State Farm Insurance, with a million policies, is the largest private insurer.

Despite changes to Citizens operations brought about by the reform bill, agents realize a state-run insurance pool isn’t the sole answer to Florida’s insurance crisis.

Dulce Suarez-Resnick, an agent with HBA Insurance Group in Miami, said the just-passed “Band-Aid legislation” addresses affordability, but it does little about availability.

“How do we get these national companies, A-rated admitted carriers, back in the game? I haven’t heard a word from any of them. Have you?”

Copyright © 2007 The Miami Herald, Beatrice E. Garcia. Distributed by McClatchy-Tribune Business News.

For nore information please visit www.Homes4UinTampa.com