Insurers' 'adjustments' a bad joke

By Insurance Commissioner Kevin McCarty
Published July 25, 2007

Florida lawmakers faced a formidable task as the Legislature convened for the January 2007 special session: to develop a strategy to handle the property insurance crisis.

Not only had Florida policyholders been subject to rising premiums, but as the special session convened, the Florida Office of Insurance Regulation (OIR) had more than 90 pending residential rate increase requests, ranging from 2 percent to more than 100 percent, with most in the 30 percent to 40 percent range. Consumer complaints, news media reports and the 2006 election cycle had taught us one thing: Floridians were demanding rate relief.

The challenge for Gov. Crist and the Legislature was to provide relief in a fiscally responsible manner. When questioned about rising premiums, prior to and during the special session, the insurance industry overwhelmingly pointed to the increased cost of "reinsurance" - or backup insurance - as the primary culprit. Legislators addressed this problem, at the request of and with support from many insurers, directly by expanding the Florida Hurricane Catastrophe Fund to provide more inexpensive reinsurance to the industry.

Paragon Strategic Solutions Inc., a consultant for the insurance industry, analyzed the changes and predicted a 23 percent average rate savings for consumers. This analysis was provided to the governor and Legislature in order to show the anticipated savings to consumers if the hurricane fund were expanded. The Office of Insurance Regulation hired its own outside consultants to analyze the impact. Their report predicted a similar average savings of 24 percent.

The new law required an immediate "presumed factor" savings filing by March 15 to implement new rates by June 1. Companies were allowed to accept the presumed factor of up to 24''percent, or make their own filings if they could support different savings. Many companies elected to make their own filings, which claimed average savings of 12.2 percent. Although less than predicted, this was a triumph for Floridians, as not only did this adjustment halt rate increases; it offered modest decreases. Yet this was a first step, since the final "true-up" filing - incorporating all savings - still was forthcoming.

Companies have until Sept. 30 to make this adjustment filing. The Office of Insurance Regulation expected that these filings would contain additional savings, bringing the initial 12 percent savings more in line with the predicted savings. This has not happened.

As of July 17, the OIR has received 46 filings for residential policies. Two ask for rate decreases, nine request no change, and 35 ask for rate increases. Of the 35 rate increase requests, the average is 37.3''percent, which in many cases would eliminate all savings achieved during the initial "presumed factor" filings.

At a time when the property and casualty insurance industry achieved record profits in 2006, combined with additional state resources offered to these companies, the recent spate of rate increase requests is very troubling.

On July 10, the Office of Insurance Regulation conducted its first public rate hearing for the "true-up filings," in this instance for the Florida Farm Bureau Insurance Cos. The request was a 26.8 percent, amended to 30.3 percent increase for homeowners' policies. The information presented was illuminating.

While the companies received savings from the Legislature's initiatives, the companies did not plan to pass this savings to the consumer, as the Legislature intended. Instead, the savings would be used to purchase additional reinsurance, even from their own subsidiaries, and to shore up their financial reserves. Regrettably, Florida Farm Bureau's filing appears to be indicative of filings from the rest of the industry.

Based on the evidence presented, the Office of Insurance Regulation issued a notice of intent to disapprove this filing. Moreover, we are scheduling other rate hearings to review the reasoning for other companies' rate increase requests.

I am resolved to use the Florida Statutes and Administrative Rules to ensure that Florida policyholders receive the savings intended by the governor and the Legislature. I remain optimistic that the vast majority of companies will do the right thing by their policyholders.