Home insurance cuts come up short

Article Courtesy of The Palm Beach Post

Published June 23, 2007


The 24.3 percent average property insurance rate cut policyholders across the state were told they could look forward to likely will be closer to 15 percent, according to the state's top insurance official.

The good news is that the property insurance market in Florida has started to stabilize for the first time since the hurricanes of 2004 and 2005, and will continue to do so unless the state gets hit with a major windstorm this year, Insurance Commissioner Kevin McCarty said.

In a wide-ranging interview, McCarty explained why savings on premiums will be different from earlier estimates of the impact of insurance reform passed by state legislators in January. He also offered hope for the state's insurance market, which has been in upheaval since the catastrophic storms.

The stability has come in the form of companies entering the marketplace and assurances from other major insurers, including Allstate and Nationwide, that they don't plan additional cutbacks in Florida. McCarty said that while neither is writing new homeowners policies, other carriers are aggressively soliciting customers, thanks in part to a low-cost state loan program.

Not everyone shares his enthusiasm. Jeff Grady, president of the Florida Association of Insurance Agents, said the actions this year by companies such as The Hartford and USAA to not renew or restrict new policies are signs the Florida market is still in big trouble. While new companies are coming in, they are small players.

"They are not a replacement for Allstate and Nationwide,'' he said.

Allstate has made huge cuts and is in the process of dropping several hundred thousand policyholders. Nationwide is shedding 35,000 policies.

At least five new residential insurers - all smaller companies, and some catering only to specific niches - have entered the Florida market since January: Modern USA Insurance Co., Privilege Underwriters Reciprocal Exchange Inc., Olympus Insurance Co., American Keystone Insurance Co. and Homeowners Choice Property & Casualty Insurance Co.

Lower rates linked to reinsurance

McCarty said the original savings projections in the legislature's insurance reforms were estimates based on the reinsurance purchases of 11 insurance companies, not the 190 that ultimately submitted filings, he said. Those 11 insurers - small, medium and large companies - were supposed to be representative of the entire Florida homeowners insurance market.

''We always said the actual decreases could vary,'' he said.

The rate reduction was the result of legislation passed during a special session in January. Insurers were required to implement new rates by June 1 as policies renewed and pass on savings brought on by the availability of cheaper reinsurance from the state's hurricane catastrophe fund. The fund sells reinsurance - insurance for insurance companies - at a fraction of the cost insurers would pay in the global reinsurance market.

Its expansion was a key part of lawmakers' efforts to lower rates. Insurers have been offered an additional $12 billion in discounted coverage, on top of the $16 billion they already purchased.

McCarty said at a news conference in March that the cut in South Florida would be more generous than the 24.3 percent statewide average. He also said then that reductions would average 34.5 percent in Palm Beach County. However, regulators say it is still too soon to know precisely what the average discount will be in specific counties.

Even the 15 percent reduction may be optimistic. Robert Hartwig, an economist who serves as president of the industry-backed Insurance Information Institute, said he was not surprised the reductions were less than anticipated.

"The numbers were never realistic," he said.

Hartwig said insurance policyholders will be in for a shock if even a moderate hurricane hits the state because the rate reduction plan calls for policyholders to be assessed additional premiums to fund payouts from the state hurricane catastrophe fund.

Insurance regulators' current analysis show an average 12 percent reduction. McCarty said, however, that he expects to see additional savings when insurers file documents by late August that show how much they have spent to buy reinsurance in the global marketplace to supplement the state fund coverage.

Reinsurance prices in the marketplace have dropped by about 20 percent this hurricane season from last year's skyrocketing rates, meaning insurers will reap additional savings, he said.

While some policyholders might be disappointed, McCarty said, the reality is that before the legislature passed its property insurance reduction plan, many insurers were getting ready for a new round of rate increases of between 30 percent and 40 percent.

Citizens grows under new rules

The other key part of property insurance reform was the expansion of Citizens Property Insurance Corp., the state-sponsored insurer. Already the state's largest insurer, it has been growing rapidly since legislators changed many of the rules governing its operations.

Several consumer and insurance-agent groups say it is still extremely difficult to find insurance from private-market carriers willing to write in South Florida other than state-sponsored Citizens. They argue that the companies writing policies often charge higher rates than Citizens.

Michael J. Letcher, a businessman who is starting an online subscription service to help consumers buy insurance, said the market in South Florida remains extremely tight. He said only about 20 companies are writing policies in South Florida and many have restrictions on coverage.

But not all. The State Farm Florida Insurance Co. has seen a net loss of about 12,000 policyholders since January, with many fleeing to the newly strengthened Citizens. Chris Neal, spokesman for the insurer, said it is lower rates that are drawing them.

"State Farm cannot compete with Citizens' subsidized rates," he said.