March legislative session to tie up
ends from 2007
Article Courtesy of The Sun Sentinel
By Heather Carruthers
Published February 5, 2008
recent op-ed piece from Eli Lehrer of the James Madison Institute
regarding the Legislature's property insurance reform may lead some to
believe it's time to abandon the gains of last year's special session. But
before legislators surrender, many consumer groups would like to suggest
that, rather than going too far, those reforms did not go far enough.
The James Madison Institute is a Tallahassee "think tank" that
provides position papers on behalf of business and the insurance industry.
Conversely, the diverse groups signing this letter represent thousands of
believe the free market should provide the best solution to market
problems. However, our problem in the Florida property insurance market is
that the free market has failed us.
After Andrew, many property insurers fled Florida. The Joint Underwriting
Authority was created to fill the gap and ultimately became Citizens
Property Insurance. Contrary to the Madison Institute's assertion, until
last year Citizens' windstorm rates were mandated to be non-competitive
— at least 20 percent above market. National firms established Florida
spin-off or "PUP" companies to contain losses and maximize
profits for the parent company. Insurers practiced "use and
file," raising rates and billing consumers before rates were
approved. Still, private insurers did not return to Florida.
The reforms of last year brought modest relief to some ratepayers. Some
companies lowered premiums due to the increased availability of
reinsurance from the Florida catastrophe fund. The promise of profits
brought other small insurers into the state cautiously. The state should
continue to beef up the cat fund, and could establish a consistent funding
source directly related to windstorms: Earmark the majority of post-storm
sales tax windfall revenues for this purpose.
Those firms that did not lower rates have hidden their counter-intuitive
rate increases behind "black box" models that dilute the benefit
of a more robust cat fund and reinsurance availability, that rely on
five-year storm projections when we have over 50 years of solid hurricane
history, that do not accurately reflect the strength of construction by
region, and that are profoundly opaque to regulators charged with
approving or disapproving those rates. The recent stand-off between
Insurance Commissioner Kevin McCarty and Allstate attests to insurers'
unwillingness to operate transparently.
Two relatively calm years of collecting high premiums without paying
significant claims, an expanded cat fund for better reinsurance
accessibility and lower costs for private reinsurance due to those calm
seasons have not been enough to entice large private insurers back to the
Florida market. The state owes it to consumers to operate Citizens like a
business. Diversifying coverage would allow Citizens to spread its risk
and improve its bottom line. Building reserves and buying reinsurance with
the revenues gained from two quiet years would diminish the potential for
future assessments. In an ideal world, the free market would step in to
provide property insurance that would not bankrupt consumers. Insurers
would expand their book of business to spread their risk. But this is not
an ideal world. The private market has been given ample latitude and
opportunity to fulfill Florida's property insurance needs, and still,
without Citizens, more than a million Florida property owners would be
uninsured. Therefore, when Florida lawmakers begin mulling insurance
legislation for the session that begins on March 4, they ought to consider
proposals to bolster Citizens, strengthen the cat fund, open the black
boxes, make prior rate approval permanent, eliminate arbitration panels
forever, and finish the work begun last year.
Heather Carrruthers is with the Consumers' Coalition on Insurance.