of the storms:
Florida insurance commissioner wields far-reaching power
Article Courtesy of The Miami Herald
May 11, 2016
TALLAHASSEE -- It is the most powerful job in state
government most people can’t name.
Florida’s insurance commissioner has the unfettered ability to affect
the cost of living in the state. From the property insurance policy of
every homeowner, to the workers’ compensation plans of every employer,
to millions of automobile, life insurance, medical malpractice and
health care claims, the insurance commissioner has the final say on how
much those rates will rise, and how much they fall — if at all.
The 262-person Office of Insurance Regulation touches nearly every
aspect of life in Florida, from birth to death. It acts as the state’s
financial sleuth, deciding if every one of those companies is
financially sound enough to take on new customers, and when they are
troubled enough to be shut down. And with the stroke of a pen — and
within the confines of the policies written by the Florida Legislature —
the commissioner has the final say on which losses customers will pay —
and which ones insurance companies must reimburse.
For the last 13 years, the job has been held by Kevin
McCarty, a 27-year state bureaucrat, lawyer and graduate of the
University of Florida, who steered Florida’s complex insurance market
past so many obstacles he has become one of the most recognized experts
in managing catastrophe in the country.
On Tuesday, McCarty, 57, will officially retire from the agency, to be
replaced by David Altmaier, 34, McCarty’s deputy commissioner for
Property Casualty Insurance.
But for the last four months, the two Cabinet
officials who by law must agree on McCarty’s successor — Gov. Rick Scott
and Chief Financial Officer Jeff Atwater — were locked in an
unprecedented feud over whose candidate will replace him.
The standoff underscored the political potency of the job, which not
only impacts people’s pocketbooks but is a crucial cog in the state’s
At an emergency meeting of the Cabinet Friday,
Atwater and Scott overcame their impasse to select Altmaier from among
three of McCarty’s deputies. They asked McCarty to stay on in an
unofficial capacity as an adviser and “mentor” for 60 more days.
Kevin McCarty delivers a report to the Cabinet during a meeting,
Tuesday, April 26, 2016, in Tallahassee.
The timing is important. June 1 begins another uncertain hurricane
season, and a recent Florida Supreme Court ruling on workers’
compensation has prompted Florida lawmakers to discuss convening a
special legislative session to avoid a potential 30 percent increase in
“Being insurance commissioner is not for the faint of heart,” said
McCarty, a day before his replacement was picked.
“It’s not a popular job,” said Jay Neal, president of the Florida
Association of Insurance Reform, who has had his share of disagreements
with McCarty. “Almost everything you do you’re going to tick off
During his tenure, McCarty has been criticized by governors and
legislators, demonized by insurance lobbyists, and blasted as a tool of
the industry by consumers. He has developed a thick skin, he says, and
worked to “listen to all stakeholders and find a balance.”
Two years ago, Scott wanted McCarty removed after a lobbyist for Bankers
Insurance, Fred Karlinsky, urged Scott to tap Louisiana Deputy
Commissioner of Consumer Advocacy Ron Henderson instead. Atwater
resisted, and McCarty stayed.
“I have worked for three governors, and three CFOs, attorneys general
and ag commissioners,” McCarty said. The bosses have shown “different
levels of interest in insurance over the years,” McCarty said and,
“while the governor is the governor, the office was intended to be
independent” to implement “the law as enacted by the Legislature.”
Although the governor has never explained his rationale for wanting to
remove McCarty, many have been left to speculate.
“It fits the bill of him wanting to rotate agency heads,” said Jeff
Grady, president of the Florida Association of Insurance Agents. “He’s
kind of done that with everybody.”
McCarty is paid $134,157; the governor and Cabinet agreed to pay
Alex Sink, Florida’s former chief financial officer who ran
unsuccessfully for governor in 2010, said that McCarty has at times
“been perceived to be very much in the pocket of insurance companies”
and others times believed to lean too far on the side of consumers.
For example, she said she disagreed with McCarty’s hard line against
State Farm’s request for double-digit increases in its rates after the
storms of 2004 and 2005.
“He gave them zero; I thought that was wrong,” Sink
said, noting State Farm subsequently stopped writing property insurance
policies in Florida and dumped them onto state-run Citizens Property
McCarty was at the helm in December 2006, when legislators convened a
special session to freeze Citizens rates on its nearly 2 million
policyholders, and even order refunds. And he was still there in 2011
when Scott declared he wanted to get rid of Citizens entirely and
appointed people to the company’s board who agreed.
“He’s been as good as he could possibly be and still keep his job,” said
former state Sen. Steve Geller, a Democrat, lawyer and former president
of the National Conference of Insurance Legislators.
In 2002, McCarty was director of insurance regulation when voters
approved a constitutional amendment aimed at buffering the office from
the pressure of industry money and politics. That led to a legislative
reorganization that required three members of the four-member Cabinet to
appoint the insurance commissioner, with a requirement that the governor
and CFO agree.
McCarty became adept at understanding the law and finding the tools to
build market confidence and stability. A recent example is the stress
test his office designed to engender confidence in the property
insurance market in the face of unprecedented rise in new Florida-based
companies that were taking over policies once held by Citizens.
OIR examined each property insurance company’s ability to respond to the
impact of historical storm scenarios, including how much surplus they
carry that exceeds the minimum set in Florida law. Every company passed
but one, and that one passed after it purchased more re-insurance.
“Insurance is heavily regulated. It has always been,” McCarty explains,
“because buying insurance is not like buying a television set or a
toaster because you’re buying a promise to pay in the future.
“Almost everybody needs insurance, and regulation is essential to
minimize insolvency and predatory practices. But you’ve got to be
careful not to over-regulate. It discourages businesses and drives
capital out of the state.”
Too many wrong moves on homeowners insurance could stifle affordability
and access, jeopardizing the steady recovery of Florida’s real estate
market. Florida has watched it happen before, when the homeowner’s
insurance market seized and nearly collapsed after Hurricane Andrew in
1992, and again, after eight storms in 2004 and 2005.
Industry pressure to raise workers’ compensation premiums because of the
recent court ruling could discourage businesses from expanding in
Florida. By contrast, if regulators allow companies to limit coverage,
workers who can’t get compensation for their injuries could become an
increasing burden on the healthcare system.
Insurance “is boring until it’s not,” Sink said.
McCarty says he is leaving when Florida property insurers are
well-capitalized and “markets are good,” able to handle a once in 100
years storm event.
Nine years of no hurricanes and the unprecedented low cost of
re-insurance has helped to dramatically reduce the size of Citizens
Property Insurance, dropping exposure from $511 billion in 2002 to $143
billion, and diminish the likelihood that it could impose an assessment
on all other homeowners’ policies to recover its losses.
Florida’s worker’s compensation insurance market and medical malpractice
insurance market, both of which were ailing a decade ago, have rebounded
“Florida has been the real success story,” McCarty told Insurance
Journal, a trade magazine for the property and casualty industry in an
interview this month. “Many of our companies have now branched out to
other Gulf Coast states because they have an expertise from their
experience in Florida in operating in high-risk areas.”
But while the state developed a stress test for insurance companies to
see how they will withstand the next storm, there has not been one for
consumers. Annual reports prepared by Florida’s Office of Insurance
Regulation show that the department has approved more than 100 rate hike
requests a year in homeowner’s insurance alone since 2009.
Citizens Property Insurance continues to be the largest insurer in the
state, with more than 400,000 policies still in South Florida. Its
average premium for coastal wind-only homeowners policies has risen to
$2,599 this year, up 8.3 percent from the 2015 average of $2,400. The
rate hikes are a reflection of the Legislature’s decision to enact a
“glide path” aimed at raising rates but capping them at no more than 10
percent per year.
McCarty concedes that as the markets have stabilized, “we have not seen
a commensurate reduction in the rates.”
The reasons: insurers are putting more money into surplus, purchasing
more reinsurance, experiencing a spike in water-damage losses stemming
from a push by restoration companies, working with law firms, to file
lawsuits, and in some cases “returning more money to policyholders,” he
In the next storm, homeowners will face “more out of pocket expenses,”
that could become challenging if there is more than one storm in a
season, he warns.
A decade ago, homeowners policies routinely had deductibles of $250 to
$500 for all perils, including wind, but now policies have deductibles
based on a percentage of coverage and that can be as much as 2 percent
or 3 percent per occurrence, not per year.
The goal of the policy was to expand the capacity in the marketplace by
encouraging more companies to write business in Florida and encourage
homeowners to mitigate damage by purchasing storm shutters, fortifying
roofs, and investing in other home-hardening improvements, McCarty said.
“If consumers have more skin in the game, they can mitigate potential
Geller warns that the realignment that has allowed rates to increase and
coverage to decline could come back to haunt Florida officials in the
“The next time there’s a major hurricane people are going to be marching
on Tallahassee with pitchforks and torches, and Tallahassee will deserve
it,” he said. “It would have been a lot worse if Kevin hadn’t rejected a
lot of rate increases and coverage decreases, but he did.”
Rep. Jose Felix Diaz, R-Miami, the chairman of the House Regulated
Affairs Committee said the Legislature has recognized that realignment
and has worked to peel back some of the excessive provisions “that would
have decreased rate caps or led to deregulation.”
“Insurance companies were starting to get away with murder and drafting
anything that would benefit them first,” Diaz said. “We had the good
luck of having a good insurance commissioner and also having no storms,
but probably the Legislature overreacted for several years.”
McCarty is ending his career as insurance commissioner with a
substantial, national settlement against life insurance companies who
failed to pay death benefits even when the companies knew the
policyholders had died.
As head of the National Association of Insurance Commissioners’ Life
Annuities/Unclaimed Property Task Force, McCarty initiated audits of the
nation’s leading insurance companies and uncovered the systematic,
As a result of the investigation, 25 insurance companies have agreed to
pay more than $7.5 billion in death benefits and another 35 companies
have not settled and remain under investigation.
He has not said what his future plans are. Rumors include that he may be
interested in heading the federal government’s National Flood Insurance
Program or taking over as chief executive officer of the National
Association of Insurance Commissioners.