Crist's boasts set up risky insurance fight

Article Courtesy of The Palm Beach Post

By S.V. Date
Published  January 14, 2007

TALLAHASSEE For months, self-styled "people's governor" Charlie Crist ran a campaign sounding more like Ralph Nader than Ronald Reagan, accusing insurance companies of gouging Floridians.

And for months, Democrats said Crist would not be up to the task, and as a Republican could not tame the powerful insurance lobby.

This week, Crist will try to make good on his first, and possibly biggest, populist challenge: shepherding legislation that lowers skyrocketing property insurance rates.

"Big insurance has a new day coming, and it starts the 16th," Crist promised last week. And later, to emphasize that Floridians hurting from the crisis have a new champion, he declared, "The powerless have now become the powerful."

The special session will start Tuesday, exactly 14 days into his four-year term, creating even higher stakes. If he succeeds, it probably will enhance his already high popularity. But if he fails, it could damage his effectiveness for months, if not years - much like former Gov. Bob Graham was hurt by his initial failure to get lawmakers to support one of his 1978 campaign promises, an increase of the property tax homestead exemption.

"He's gotten himself into a tough squeeze, just two weeks into it," said Graham, a Democrat who ultimately got the exemption question on the ballot. "This will be a major test. If he passes it, it will get his administration off to a flying start."

Crist convinced enough Floridians that his experience fighting scams and price-gougers as attorney general gave him the background to stare down the insurance companies. In reality, though, the battle that starts Tuesday is on an entirely different scale.

As the state's top lawyer, Crist typically would sue one particular business at a time over a particular deceptive trade practice or overcharging scheme.

Now, in contrast, Crist is taking on one of the most politically connected industries in the country over the fundamental structure of its business as it has evolved in Florida during the past 15 years.

Crist uses Citizens leverage

The result could be a dramatic turnabout in how Florida deals with hurricane insurance.

For a decade and a half, the state has offered massive subsidies and other carrots with the hope of enticing the private insurance industry to continue writing hurricane coverage.

This week, Crist is ready to use a big stick instead to force the industry to lower its rates, and, if it doesn't, to have the state-run insurer prepared to step in as a backstop.

"They can be the most competitive, even, if that works for the advantage of our people," Crist said. "Let's understand: We're already in this business. We're here. So let's acknowledge what the current reality is and work as best we can within it to help the people.

"I am a less-government guy," the governor said. "But I also understand practical reality of where we are. We've had some dramatic couple of years that have put Floridians at risk. And we have an obligation to do everything we can to help them, to serve them."

In past years, state leaders accommodated the insurance industry, putting into law such provisions as a requirement that Citizens Property Insurance Corp. write only policies that private insurers did not want, and then do so at rates higher than the private market would charge.

This was done to avoid taking business away from the private companies, but it also had the effect of giving those companies a powerful threat. As Bob Hartwig, an economist with the insurance industry-funded Insurance Information Institute, says even now: Crist's proposals could worsen the Florida property insurance marketplace and cause private insurers to abandon the state.

"It serves no one's interest to regulate the insurance industry out of existence in Florida,'' Hartwig said.

That threat, though, would be neutralized by Crist's proposal to let Citizens write policies not just all over the state, but at rates competitive with what private companies charge. Then, should the private companies leave, Citizens would be there to fill the gap.

"That's part of the plan," said Crist chief of staff George LeMieux. "And they better take their auto (insurance line) with them."

Another "must-have" feature for Crist from the special session on insurance is a prohibition of what he calls cherry-picking. Companies that sell property insurance in other states also would have to sell it in Florida, or lose the ability to sell more profitable lines, such as auto, in the state as well.

"Publix may not make a lot of profit selling Coca-Cola. But they've got to sell Coca-Cola," LeMieux said. "Gov. Crist believes that these companies, who are in a regulated industry, have to be here for the bad times as well as the good times, and they have to be willing to participate in a meaningful way in all sectors of the insurance market, and not just take all of the cream off the top."

Election alters GOP stance

A year ago, most state Republican leaders believed that insurance rates had to rise to keep insurers in the Florida market, and that getting the state further involved was a mistake.

The insurance industry and many business groups continue this argument. State Farm lobbyist Mark Delegal warned the House Insurance Committee against coercing insurers into writing homeowners polices.

"That is not a good signal to send out to the marketplace," he said.

Florida Chamber of Commerce lobbyist David Daniel told the committee not to let Citizens write policies that competed with private insurers. "I think that leads to a big-government solution," he said.

Although such arguments resonated strongly with former Gov. Jeb Bush and legislative leaders last year - Bush pushed for a special session before Crist took over in hopes of preempting Crist's more radical measures, a top Republican senator privately said - they have lost steam after an election that saw Republicans lose seven House seats to Democrats.

The fact that Crist has said he is pleased with the bills in both the House and the Senate led the GOP senator to joke of the insurance industry lobby: "Powerful? They've been brought to their knees."

And House Speaker Marco Rubio, R-Miami, when asked whether state action would hurt the private market, said: "What market? What insurance market?"

Crist and other lawmakers have pointed out that the state does not have a true private market today: The state gives insurers a massive subsidy through the Hurricane Catastrophe Fund, which last year provided reinsurance to private companies at a $2.2 billion discount from what private companies would have charged.

Property insurance is not something most buyers can do without, unlike luxury goods such as jewelry, so it couldn't be a truly free market to begin with, LeMieux said.

In any event, enough legislators have heard enough complaints from enough voters in their districts to be willing to set aside philosophical abstractions and take action, even if it means increasing state involvement, LeMieux said.

That means Crist could win big this week, lawmakers from both parties said.

"He framed the issue. Upfront. In the campaign. And he hasn't backed down," said Senate Majority Leader Dan Webster of Orlando.

Added House Minority Leader Dan Gelber of Miami Beach: "Maybe it just tells you how extreme a crisis it is that both chambers, both parties and the governor seem to be talking about the same ideas in the same way."

Targeting rate relief

Crist's priorities

Require insurance companies to make 'meaningful and broad-based' rate cuts.

Eliminate 'pup companies' — subsidiaries that parent companies set up in Florida to protect them from catastrophic losses from a major storm.

Eliminate 'cherry-picking' by requiring companies that sell property coverage in other states to offer it in Florida, too, or lose the ability to write profitable coverages such as auto in the state.

Make state-run Citizens Property Insurance Corp. competitive with private companies anywhere in the state.

Require uniform state building codes, eliminating an exemption lawmakers gave the Panhandle.

Enhance state programs to get money to people to storm-proof their homes.

House bill's highlights

Requires property insurers to give customers at least a 25 percent rate reduction if the insurers buy more reinsurance from an expanded state-run Hurricane Catastrophe Fund. The fund would offer insurers up to $18 billion in coverage instead of the current $10 billion at rates lower than the private market.

Prohibits insurers from making excess profits and requires the return of excess profits to policyholders.

Prohibits the formation of new Florida-only subsidiaries of national companies.

Requires any insurer that sells auto and home lines in another state to offer both lines in Florida.

No longer requires Citizens' rates to be the highest in the market.

Repeals the Jan. 1 Citizens rate hike and freezes rates for a year at 2006 levels.

Requires insurers to use storm worthiness of a home rather than date of construction to set rates.

Senate bill's highlights

Requires private insurers to cover the first $6 billion in insurance claims. For losses between $6 billion and $22 billion, allows private insurers to access the Hurricane Catastrophe Fund with a 10 percent co-payment, as is allowed. A state 'super reinsurance fund' would cover losses of more than $22 billion if private insurers pay a co-payment of 10 percent.

Requires insurers to allow policyholders to opt out of windstorm coverage and eliminates maximum allowable deductibles.

Requires insurers to allow policyholders the option of excluding coverage for contents.

Requires insurers to allow policyholders to offer a deductible equal to up to 50 percent of the policyholders' equity in the property.

Proposes doing away with the arbitration process for insurers to appeal a rate filing denied by the Office of Insurance Regulation.

Moves the insurance consumer advocate from the Department of Financial Services to the Office of the Public Counsel, overseen by the legislature.

Gives condominium associations the ability to form self-insurance funds by joining other homeowner associations and does away with a requirement that the group be formed for purposes other than insurance.

Eliminates the Panhandle exemption to the Florida Building Code.