Verdict out on insurance reform

by Ed Scott
Venice Gondolier Sun

One year after Gov. Charlie Crist signed insurance reform into law, experts are debating whether homeowners got the rate relief the bill was intended to provide. As the economy worsens, some Florida residents are taking risks by buying less insurance than they need -- to save money.

"I wish I saw a bright future out there," Tampa attorney Chip Merlin said. "Except for those people who can afford good insurance, it's become evident that many people are reducing their insurance, hoping a catastrophe won't happen. It's essentially playing Russian roulette with your savings.

"For the last two years it's been the perfect time to be in the insurance business in Florida because rates have been through the roof and there have been no catastrophes."

Homeowners must go forward, but where can they go? State Farm (which recently announced it has stopped writing new policies), Citizens Property and Universal Property & Casualty rank 1-2-3 in the region, including Sarasota, Charlotte, DeSoto and Hardee counties, based on the number of active policies, and are the only firms ranked in the top 10 in each county.

Nationwide and lesser-known American Strategic are ranked 4-5 in the region.  After the 2004 and 2005 hurricane seasons, when Florida insurance companies paid out billions in claims, the companies regrouped.

Many requested new rates that would cover anticipated future losses, but they were not allowed to make up for past losses. Some found ways to reduce their exposure to claims by canceling policies of high-risk customers. Some companies -- such as Allstate and Nationwide -- ceased selling homeowners policies here. Homeowners' ire forced a special legislative session in Tallahassee, and when Crist signed insurance reform legislation into law in January 2007, the state's goal was straightforward -- reduce property insurance rates and increase homeowners' shaken faith in the insurance industry.

Insurance Commissioner Kevin McCarty hailed the new law, saying it would bring badly needed rate relief to Floridians. Summoned Large companies differed in how they responded. State Farm and the state Office of Insurance Regulation agreed on a 9-percent decrease in homeowners insurance rates. But after Allstate requested a 41-percent increase, its company executives were summoned to appear before the Senate Select Committee on Property Insurance Accountability Feb. 4 in Tallahassee, to answer lawmakers' questions. An Allstate executive blamed weather patterns for the high rates.

"Many scientists believe that we are in a period of increased sea surface temperature, which they believe will cause an increased likelihood of hurricane formation," Allstate Floridian Chairman and CEO Joe Richardson told the committee.

"Prudent business judgment dictates that this increased risk of hurricane formation should be taken into consideration in determining the appropriate rate for the risk being insured."

State lawmakers were frustrated because insurance executives sidestepped their questions. State Sen. Mike Bennett, R-Bradenton, who represents residents of Charlotte, Sarasota, DeSoto, Lee and Manatee counties, is a member of the committee.

"It is awfully confusing, and even being part of the committee it is still confusing because of these rate filings; it's kind of like a voodoo game; you're really not sure what you're looking at," Bennett said, according to WTSP Channel 10. 'Hand over fist'

Merlin, who represents policyholders with claims and disputes, pointed to Allstate and American Strategic as firms that approached the new legislation differently.

American Strategic is "a small company that started in Florida and is growing," Merlin said.

The firm requested a 20.9-percent combined reduction in its rates.

The St. Petersburg company, which increased its market share for homeowners policies in Sarasota, Charlotte, DeSoto and Hardee counties from 3.4 percent in 2004 to 5.1 percent in 2007, is looking to expand into four other states.

"They have done an excellent job of being up front (with rate decreases)," Merlin said. "While larger companies are leaving, American Strategic is making money hand over fist."

John Auer, CEO of American Strategic and three other insurance companies, said several factors fell into place for the company when Crist signed the new law.

"We don't retain a lot of the hurricane risk," he said. "We buy reinsurance to take that risk. Our trends on losses other than catastrophes (fire and water) have been good. It enables you to lower rates."

Auer testified at the same Senate hearings as Richardson, the Allstate Floridian CEO.

"They don't really want to write catastrophic risk business here," Auer said of Allstate. "I think that's pretty obvious. We do very good at managing and insuring catastrophic risk. Our companies decided that what we have is what we want, and we will write enough new business to keep it there."

More leverage

The new law promised lower rates but it also increased the state's leverage against companies that hope to maintain higher rates.

"We have a stronger insurance commissioner," said Bill Newton, executive director of
Florida Consumer Action Network, a Tampa-based organization that is active on
insurance issues. "(Companies have) to get approval now before they can raise rates and they did not have to before."

The bill had numerous provisions. Chief among them, the state catastrophe fund -- a pool of inexpensive "reinsurance" that insurance companies buy to improve their financial viability in the event of hurricanes or other natural disasters -- was increased from $16 billion to $28 billion.

In return, insurance companies were required to pass along their savings to homeowners, by proposing two rate rollbacks in 2007. Each company's mandatory reduction was to be approved by the OIR.

The legislation also requires insurance company executives to take an oath of truth, with penalties of perjury, for rate filings.

"If the House bill works, it will be a blueprint for the nation and drop rates elsewhere," OIR spokesman Tom Zutell said recently. Unkept promises Crist, for one, is not entirely happy with the result.

"In spite of steps taken to lower the cost of insurance, it appears some insurance companies have failed to pass those savings along to customers as the law requires them to do," he said in a Jan. 10 statement. Merlin agrees.

"A year ago insurance companies said they can't afford to sell insurance because (reinsurance) is too high, there is too much risk," he said. "But their promises were not kept."

Newton said insurance reform has worked -- somewhat.

"It depends on what company you are with," he said. "A lot of companies have lower rates. State Farm went down 9 percent and we would have liked it to have been more. But at least it's not a 41-percent increase like Allstate is seeking."


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