State takes on more risk to give insurance relief

State legislators passed a major revamp of the insurance

market, increasing the state's role in order to lower rates.

Article Courtesy of The Miami Herald

Published  January 23, 2007

The Florida Legislature voted Monday to overhaul the state's hurricane-insurance market, promising big savings for homeowners and businesses while expanding the role and risk of the state as never before.

But despite the politicians' promises, they wouldn't and couldn't guarantee how large those savings will be for most people or when they will begin.

The bill, which Gov. Charlie Crist said he will sign as early as Wednesday, has no clear requirement for immediate across-the-board rate reductions and relies on ever-changing calculations. Estimated average savings: about 22 percent for private-insurance customers and 8 percent to nearly 19 percent for those covered by Citizens Property Insurance.

Those promised savings, though, could be permanently shattered if a major hurricane hits, because the Legislature has pledged the state's finances to cover damages that exceed about $35 billion. If that happens, Floridians can expect increases on everyone's windstorm policies -- as well as their car, fire and liability insurance as well.

''What we're doing is we're gambling. We're doing that with all the people of the state of Florida. That's what insurance is -- gambling,'' said Rep. Ronald Reagan, a Bradenton Republican who helped craft the bill.

Crist, who had said he would accept nothing less than substantial rate reduction, said he was comfortable with the risk and the shifting numbers because he's an ''optimist.'' He joined legislators to jubilantly cheer the bill, acknowledging that while he threatened a veto early in the day, lawmakers addressed his concerns.

''They said this could not be done. You've done it,'' Crist said. ``We are going to lower rates in a meaningful way. This is a great start.''

The bill not only rolls back huge planned rate increases for Citizens, it allows more commercial businesses into Citizens and adds $100 million in new federal money to beef up the My Safe Florida Home Program, which subsidizes inspections and storm-proofing of some homes.

Lawmakers and analysts estimated the average homeowner lives in a structure sound enough to merit an 18 percent rate cut. Legislators said the bill codifies rate cuts for home improvements, such as adding shutters or strengthening roofs.

After congratulating themselves for the bipartisan, ''responsible'' work that lowers rates but doesn't raise taxes, lawmakers approved the final package 40-0 in the Senate -- where Kumbaya was played after the vote -- and 116-2 in the House, with the House's two former insurance chairmen, Republicans Dennis Ross of Lakeland and Don Brown of DeFuniak Springs, voting no.


The two men crafted last year's law that legislators spent the last week trying to undo. That plan was designed to lower premiums and increase competition, but it didn't stop rising insurance costs or deter insurance companies from leaving the state.

Almost as uncertain as the weather are the many unknowns in expanding the state-run insurer, Citizens, and requiring the state to assume more risk by offering below-market-rate ''reinsurance'' to private companies. Among the unknowns:

 The effect the Citizens expansion will have on insurance costs statewide. A deficit in Citizens would be made up by assessments on most other policies in Florida and could potentially offset savings brought about by the plan.

 Whether Citizens' ability to offer more kinds of state-subsidized insurance will help or discourage private competition. The insurance industry warns that it's unfair and foolhardy.

''They're talking about competition,'' said Bill Stander, a lobbyist with Property Casualty Insurers Association. "This isn't competition for the free market. We're competing against government-run, government subsidized insurance on the cheap.''

 Whether Citizens, which has been rocked by complaints about poor service, unfair coverage and management troubles, is ready to be expanded. House Speaker Marco Rubio, a Coral Gables Republican and Citizens customer who called it ''the worst insurance company in the state,'' is doubtful.

 What effect the greater risk assumed by the state will have on state finances, such as its bond rating. The state's bond guru, Ben Watkins, said the added risk to the state ''will be a negative factor'' for bond-rating agencies.

Under the bill approved Monday, Citizens will be allowed to offer lucrative insurance lines, such as fire and theft. That should help spread risk, increase capital and lower rates by up to 10 percent more -- for a total of 20 percent -- lawmakers said.

Only 350,000 people in the high-risk areas served by Citizens would be able to participate. The remaining 900,000 customers won't be able to get the new state-run insurance products and would see only an estimated 10 percent savings.

Politically, expanding Citizens is a 180-degree turn for the GOP-controlled Legislature, which has talked about disbanding it, and once saw government as the problem rather than the solution.

Former Gov. Jeb Bush had blocked a special session on insurance late last year as fellow Republicans started talking about expanding government at the expense of the private market.

The bill makes Florida a major player in the reinsurance business, offering private companies state-backed reinsurance at below-market rates and requiring them to pass along the savings to their customers. Even if a company doesn't buy the reinsurance, it must still pass on the savings, Stander said.


But when will those savings come? When the companies refile for their rates, which could be as long as year from now.

''If you're in a private company . . . that has already purchased reinsurance for the year, then your potential savings could be zero'' for this year, said Rep. Susan Bucher, a Lantana Democrat. ``I guess this bill is better than nothing because it does repeal the bad bill that was passed.''

Uncertainty over the numbers confused legislators and led many to doubt the proposed estimates. ''I'm not sure how we're going to tell anybody in the state what's going to go down and where,'' said Sen. Nancy Argenziano, a Crystal River Republican.

For consumers, there was much to cheer, including a requirement that the state consumer advocate issue an annual report card on insurance companies and prohibiting companies from denying coverage based on the age of a home.

But lawmakers rejected a plan to require the parent companies of Florida insurers to report their profits and losses. And while they agreed to stop companies from raising rates before they get approval from state regulators, they imposed that requirement for only two years.

Crist also didn't get some consumer-friendly proposals he sought -- a four-year ban on policy cancellations and a two-year ban on increasing rates -- but said he was satisfied. ''You can't always get what you want, but you get what you need,'' he said, quoting the Rolling Stones.