Monthly Archives: October 2007

From Sun-Sentinel:

Florida got through 2006 and most of 2007 without a hurricane, but a Category 5 insurance storm continues churning in Tallahassee.

Just last week, Allstate Insurance Co. became the latest company compelled to turn over its books to state regulators investigating a possible scheme by Florida property insurance companies to keep prices high. With Gov. Charlie Crist by his side, Insurance Commissioner Kevin McCarty vowed vigilance in making sure homeowners get the savings they’re supposed to on their insurance bills.

As both sides continue battling, will the state’s fragile property insurance market right itself any time soon? Will rates continue to climb? McCarty sat for an interview Wednesday while in Fort Lauderdale for a meeting of the International Association of Insurance Supervisors. Portions of McCarty’s answers are paraphrased, but the quoted remarks are his exact words.

Q: What is the state of Florida’s insurance market? Where do you see it going in the next year?

A: Florida’s insurance market is at a crossroad. State-backed Citizens Property Insurance Corp. didn’t see the flood of new policies many experts predicted, new insurance companies are covering homes in the state, and insurance prices are beginning to stabilize. Homeowners have reason to be cautiously optimistic.

But this all follows significant legislative action and, more importantly, nearly two consecutive hurricane seasons without a major storm hitting Florida. And insurance companies are still retreating from coastal markets.

That’s why the rest of the country is paying close attention to Florida’s “great experiment” — the state’s decision to expand the Florida Hurricane Catastrophe Fund to offer cheaper backup catastrophe coverage to companies, with the demand that insurers pass those savings along to customers.

Without a change, the state could be in peril. For the first time in years, more people are leaving Florida than moving here, “which is an indication that families can’t afford to move to Florida or stay in Florida.

“Clearly, the construction business and the tourism business and the growth are the backbone of Florida’s economy, and we just need to do what we can to stabilize it.”

Q: The state predicted some pretty sizable savings for homeowners with January’s insurance legislation. For some, those savings didn’t materialize. What happened and what is the state doing about it?

A: Many companies — mostly insurers based in Florida that only insure homes in Florida — did meet the state’s expected savings. Citizens, the state’s biggest home insurer, had its rates frozen until 2009 and still passed along refunds. But some of the big national companies and their subsidiaries “kind of stuck their finger in the eye of the Legislature and the governor, saying, ‘We don’t really care about this program.’ They don’t want to see it succeed.”

Some companies are instead buying more private reinsurance coverage, “far in excess of what’s required by the state or from rating organizations.” Companies trying to game the system will be held accountable.

“You are required by law to pass on those savings, and you will be held in violation of Florida law, and we’ll take whatever action is necessary to ensure that those cost savings are passed on.”

Q: Is that why the state is issuing subpoenas to insurance companies?

A: There are two major reasons for the subpoenas: Take a closer look at insurance rates, and examine several “major coincidences” in rate requests by insurance companies.

Shortly after the Legislature passed its insurance bill in January, “we have the rating organizations and the reinsurers and the brokers using new modeling techniques … where they come up with much higher losses.

“We have rating agencies requiring [insurance companies] to have enormous amounts of new capital that would be crippling to any other financial marketplace.”

The insurance department served subpoenas to make sure companies are following the insurance code and anti-trust laws.

“Because if we succeed in Florida at providing a state partnership … to keep rates affordable, that frustrates the objectives of some people in the industry. They’re deeply concerned about that.”

Q: Some companies have said the department is using subpoenas to bully insurers into keeping rates low.

A: There’s no evidence to support that. For instance, State Farm settled with insurance regulators over its proposed rate reduction, but the state’s largest private insurer still must turn over all its books and records as part of the investigation into alleged collusion between the companies. If the subpoenas were simply a device to force down rates, “then our investigation with State Farm would be over. It’s simply not the case.”

“I’m not accusing any of these companies of doing anything wrong, but I’m going to tell you, there’s a constellation of issues that are out there, it makes a prudent person very suspicious why these rates haven’t come down.

“Like I said, we’ve seen a pattern of practice with regard to certain companies that is very disturbing, where they’re not passing those down, where they’re using some of the same techniques in their rate filings and using some of the same strategies to keep those rates up. Is that strategy by design or is that just by happenstance? And that’s what we’re going to get to the bottom of.”