More than 4 million Florida homeowners, battered by property insurance rate hikes and disappearing coverage, are about to get hit again.
Most of the rate increases were approved behind closed doors, as insurers avoided triggering public hearings required for increases of 15 percent or more, and regulators granted increases higher than that anyway.
The rate increases will not be applied evenly, and many coastal residents will see increases of 20 to 50 percent -- a difficult proposition in a sour economy.
The insurance industry and its advocates say the increases are the result of nearly three years of government attempts to control rates.
"When you charge artificially suppressed rates, it creates water behind the dam," said former House insurance chairman Don Brown, an ardent supporter of rate deregulation and consultant to Gov.-elect Rick Scott. "It continues to pile up."
The industry has renewed its push this year for laws to expand automatic rate hikes, reduce sinkhole coverage and allow insurers to limit loss payments -- all resulting in increased costs to policyholders.
No public hearings
The primary forces draining large amounts of Florida premium -- the increasing reliance on reinsurance and outsized management fees -- remain unaddressed.
HomeWise and its related venture, HomeWise Preferred, exemplify the thin ice on which many Florida insurers now skate.
The Tampa-based companies reported an expected $199 million in premiums this year from 141,000 policyholders.
But after paying $60 million in claims during the first nine months of the year, the companies' capital surplus dropped by a third, to $22 million. HomeWise Preferred barely met the state's $5 million minimum capital requirement.
Regulators last spring approved a 29 percent rate hike -- almost twice what HomeWise had sought. Premiums will go up as much as 50 percent in some coastal areas and 38 percent in Manatee County.
Financial statements show reinsurance and management fees are the biggest drains on the companies' finances. Nearly half of customer premiums go to buy reinsurance -- more than $85 million in 2009. Another $50 million was paid to affiliates owned by HomeWise's parent corporation.
But those big bills were not the problem, said HomeWise president Dale Hammond.
He blamed the companies' need for dramatic rate hikes on everyday losses, from water leaks to house fires.
After paying for hurricane protection, the insurance company has very little left to absorb year-to-year shifts in losses, Hammond said.
"You don't have that cushion to protect you," he said. "Frankly, we would have been better off with a hurricane."
That's because hurricane damage is -- thanks to reinsurance -- the one bill HomeWise would not have to pay from its own surplus.
HomeWise's $37 million increase, the third-largest in the state, was one of eight large increases Florida regulators approved without holding a legally required public hearing.
Hammond said he filed his request for 14.8 percent not to avoid a public hearing (required at 15 percent) but to have the greatest chance of securing fast approval.
He said it was regulators' decision to approve double that.
Seven other companies similarly were granted rate increases over 15 percent without triggering televised public hearings and potential objections from the state's Insurance Consumer Advocate.
Office of Insurance Regulation spokesman Jack McDermott did not respond to repeated requests, including written questions, to explain why there were no hearings.
Insurance Consumer Advocate Terry Butler said the law required them.
"If OIR recommends that an insurer increase rates higher than the original filing and the insurer agrees, the insurer has to adjust its rate filing and re-file it," Butler said. If the result is over 15 percent, he said, "there should be a public hearing."
The truth about profits
The losses cited by many insurance companies have not stopped them from realizing profits for owners and investors.
A Herald-Tribune review of U.S. Securities and Exchange Commission filings found several companies that told investors they were profitable while telling state insurance regulators the opposite.
Universal Property and Casualty declared $11.3 million in insurance losses for its insurance company subsidiary.
But after adding back in the money Universal pays itself for management services, the company told stockholders in SEC filings that it made $29 million before taxes the first half of 2010. The holding company was still posting profits in November when its insurance carrier asked regulators for a 14.9 percent hike.
Homeowners Choice similarly declared a $4.8 million loss as of June 30, but SEC documents show it told investors its holding company made a $3.2 million pre-tax profit.
Both were granted rate hikes.
Because of such in-house transactions, the latest rate increases are likely to increase hidden profits for many companies that claim losses.
Most Florida-based insurance companies are now set up to pay sister companies for management services, claims adjusting or other tasks. These companies often have the same owners as the insurer and operate with no employees of their own.
The practice has resulted in overhead charges to Florida consumers that are nearly twice the national average. The Herald-Tribune documented $1.9 billion in such payments in 2008 alone.
The current round of hikes will fatten those already inflated payments, warned Butler, the state's acting consumer advocate.
Because payments to affiliates are set as a percentage of premium, any rate increase to homeowners is also an increase in what the affiliates get paid.
Butler made the point this month before state regulators, noting First Home's pending request for a 39 percent rate hike also means a 39 percent pay raise to its management firm, controlled by the same man. The hike would raise the bill First Home customers must pay for salaries and office expenses from an average of $528 per policy to $681. The national average is $277.
"They can't argue their expenses are more," Butler said.