Don't deregulate insurance:

Consumers only 'choice' would be bad

Opinion Courtesy of The Palm Beach Post

By Bill Newton, Sean M. Shaw and Brad Ashwell
Published January 11, 2010

Two legislators, Sen. Mike Bennett, R-Bradenton, and Rep. Bill Proctor, R-St. Augustine, have filed bills to deregulate residential property insurance rates in Florida. SB 876 and HB 447 would allow residential insurers to set premium rates without the approval of the Office of Insurance Regulation. They call it "consumer choice," but we believe that it would provide anything but real choice for Florida's consumers.

The bills claim to give consumers "greater choice" by allowing companies to charge unregulated rates to residential customers. The architects of this legislation believe that these unregulated rates will attract more companies to the state, giving consumers more selection. The proposed legislation also stipulates that no private insurer can be charged an assessment until all of Citizens' policyholders have been charged a 15 percent assessment.

While these provisions are similar to the "consumer choice" bill introduced in 2009, this legislation would allow all authorized property insurers, not just a select few, to charge any rate.

Imagine walking into your insurance agent's office. Your agent places three policies in front of you. Two are with private insurers, and one is a Citizens policy. The private insurers' policies are close in price, but the Citizens' policy is significantly cheaper, for essentially the same coverage. Which would most consumers choose? The answer is obvious, especially in these tough economic times.

Sen. Bennett has stated that he filed this bill in response to the perception that Citizens' legislatively set rates are driving private property insurers from Florida. Unfortunately, this bill does nothing to address Citizens' rates. This legislation would only exacerbate the growth of Citizens by increasing the divide between Citizens' rates and what other companies can charge. Because Citizens is backed by all Florida taxpayers, many legislators have tried to limit the state's exposure by reducing Citizens. If private insurers can charge whatever they wish, Citizens is likely to see an increase in policyholders.

Finally, this proposal would allow all insurers to "cherry pick" customers, leaving many Floridians with nowhere else to turn but Citizens. South Floridians near the coast would see the largest increases in premiums, while Floridians who live more inland and in northern counties would see more favorable rates. When a hurricane hits, not only would Citizens have the majority of the losses, but its policyholders would have to pay that 15 percent assessment before any private insurance money was due.

Proponents of deregulation claim that it would bring new insurers to the market. However, no insurer has said publicly that it would enter Florida if the property market were deregulated. Deregulation also would strip out a huge layer of consumer protection for all Floridians.

The average consumer does not have the resources to determine when a rate is excessive. The state has the resources to judge the fairness of insurance rates, and can provide a warranty of fairness to consumers. Deregulation would end this protection.

Another argument for deregulation is that it would end the subsidization of coastal properties by inland property owners. But significant state revenues are generated from coastal areas and flow inland. Any current subsidization of the coastal market helps the overall housing market in Florida. The issue of coastal property insurance rate subsidies has been successfully addressed in other states, such as Mississippi, and the answer has never been deregulation.

History has shown the problems deregulation can bring to Florida's insurance marketplace. In, 1968, Florida politicians attempted to deregulate the auto insurance market, based on many of the arguments being submitted by Sen. Bennett and Rep. Proctor. After rate increases as high as 23 percent, the legislation was repealed. The auto insurance market has remained regulated since 1971.

As consumer advocates, we are always encouraged when any legislator or industry group proposes an idea that seeks to improve the insurance industry in Florida. However, this bill would not lead to any sort of improvement; instead it would significantly hurt Florida's consumers. If this legislation should pass, we urge Gov. Crist, as he did last year, to veto it.

Sean M. Shaw is the Florida insurance consumer advocate. Brad Ashwell is the democracy and consumer advocate for the Florida Public Interest Research Group. Bill Newton is the executive director of the Florida Consumer Action Network.