Critic hints insurers broke law

The industry offers its side as the state's allegations find support.

Article Courtesy of The St. Petersburg Times

By Tom Zucco
Published January 24, 2008

The Florida Senate pushed up by two weeks the first meeting of a special committee looking at high property insurance rates in order to hear testimony Tuesday from the nation's leading critic of the industry.

They got an earful.

"Did some insurance companies violate state law by not passing savings on to policyholders?" asked state Sen. J. Alex Villalobos, R-Miami, a member of the Florida Senate Select Committee on Property Insurance Accountability.

"It looks to me like they didn't pass through the savings they were required to," answered Bob Hunter, director of insurance for the Consumer Federation of America. He was hired by the state last year to calculate rate savings from a property insurance package.

Committee co-chair Sen. Steve Geller, D-Cooper City, asked if some companies used a short-term hurricane catastrophe model that would show greater risk, even though the model had not been approved by the state.

"Yes," Hunter answered.

Can Tallahassee fix the problem? asked state Sen. Jeremy Ring, D-Margate.

"You may need federal help," Hunter answered, "but I don't think you're going to get it. The federal government can't run the flood insurance program."

State Insurance Commissioner Kevin McCarty, who also testified before the committee, said he was "deeply troubled" by some of the rate filings he has seen. Asked if some companies had committed a crime, McCarty said, "There certainly is potential for violation of Florida law."

Created earlier this month, the panel plans to haul in insurance executives Feb. 4 and 5 and grill them on why property insurance rates haven't gone down. The hearings come a year after the Legislature passed an insurance package that aimed to cut rates by offering insurers cheap state reinsurance, which also increased the risk that taxpayers could get assessed to pay for major hurricanes.

In addition, Gov. Charlie Crist has enlisted three influential trial lawyers to look into a class-action lawsuit against the industry for possibly conspiring to artificially inflate homeowners rates.

The Florida Office of Insurance Regulation also is investigating Allstate's rate-making and claims-paying practices.

Still, in the game of brinkmanship, it was the Florida insurance industry that managed to strike first Tuesday.

Four hours before the committee held its first session to find out why at least 31 companies haven't followed state law and lowered their rates, the industry assembled its top guns a few blocks away.

Industry officials claimed that a report that Hunter issued last month alleging the industry made record profits in 2007 "grossly distorted" the current financial position of the industry. They also insisted the central part of last year's insurance reform law was wrong. The law was designed to lower rates a statewide average 24 percent.

Nancy P. Watkins, an actuary who studied the impact of the law, said she found the conclusion "seems to be flawed or oversimplified."

The insurance executives painted a grim picture of what it's like to do business in Florida, noting that eight of the 10 most expensive hurricanes to make landfall in the United States hit Florida and caused more than $60-billion in insured losses.

"All the hearings in the world won't change the fact that Florida has a tremendous financial consequence staring it in the face," said William Stander, an insurance industry lobbyist. He cited "unfortunate, horrible consequences" without a long-term solution that restores choice and control to the consumer.

What's next?

- The next hearing for the Senate select committee is Feb. 4 in Tallahassee. Lawmakers may consider closing a loophole in state law that allows for a "reasonable margin for underwriting profit," among other measures.

- As of Tuesday, state regulators had not yet filed a response to an appellate court ruling that lifted the ban on Allstate selling any type of insurance in Florida. That response could come today. Regulators can also levy a one-time fine against the insurer, but it would be limited to $25,000.