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Panel On Home Insurance Rates Yields Ways To Shield Floridians
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Published: February 6, 2008
TALLAHASSEE - An unprecedented peek behind the curtain at how homeowners insurance rates are set in Florida has given state lawmakers plenty of ideas to take to bill-drafters in advance of this spring's annual legislative session.
From the way insurers are forecasting storms, to the profits they are allowed to earn, state senators vowed Tuesday to continue to tweak regulatory statutes to help provide lower premiums for homeowners.
"I don't think you're ever going to see the day again in Florida where insurance providers may assume that they can just throw something at the wall and see what the consequences are if it is not carefully thought through and justified in every detail," said Sen. Jeff Atwater, R-Palm Beach Gardens, co-chairman of the Senate Select Committee on Property Insurance Accountability.
But it's not just greater scrutiny of rate proposals that lawmakers are considering after a grueling two days of testimony at the state Capitol from regulators and executives of five of the state's major home insurers.
"What we're finding out also," Atwater said, "is if there is any more we can do legislatively that doesn't harm the creation of a vibrant marketplace, but at the same time protects consumers from an industry that is beginning to use alternative sets of information at their whim when people are already on their knees."
The Senate committee is attempting to determine why changes made to state insurance law in a special session a year ago have failed to drive down rates.
Lawmakers put the state on the hook for an additional $12 billion in reinsurance coverage after insurers complained that the exorbitant cost of those big backstop policies was the key cost driver hammering Florida policyholders. The new law required insurers to pass along the savings realized with the state-backed reinsurance to their customers.
Insurers were required last fall to refile for rates reflecting the changes, with the state expecting a statewide average savings of 24 percent. The reality was some insurers filing for rate increases as high as 20, 30 or 40-plus percent.
As of Jan. 3, the state Office of Insurance Regulation has approved about one-third of 92 companies' new homeowners rates, and disapproving or providing notice of intent to disapprove of another third. The rest are pending or have been withdrawn.
Tuesday, lawmakers said they would likely focus on three key areas as they reconsider state statutes addressing the regulation of home insurers:
•Modeling practices. Insurers and regulators use complicated computer models to forecast storm activity, and, in turn, prospective losses. Lawmakers have learned that several insurers that appeared before the Senate panel have shifted to shorter-term modeling, which tends to paint a more dire picture than long-term models and could inflate damage forecasts and premiums.
The move toward short-term modeling is "the single most significant issue that we heard," Sen. Steven Geller, D-Cooper City, said late Monday. Addressing the issue in state law "would probably resolve half of all the disputes we're having," he added.
•Profits. It can be a tricky concept to legislate, but lawmakers were clearly uncomfortable with built-in profit components in rate filings.
Monday and Tuesday, they heard of profit factors ranging from 3.7 percent - which the state Office of Insurance Regulation approved - to 23 percent, which it did not. Lawmakers suggested that existing excess-profits statutes may have to be revisited.
"You're building profit into your entire business model when you're figuring out how much loss cost you're going to have to someday pay," Atwater said. "To stack on top of that profit factors is to suggest that you somehow don't believe any of the science you've historically been working with."
•The state's arbitration process when insurers' rate requests have been denied. The January 2007 legislation temporarily suspended arbitration over rates, with lawmakers on Tuesday recalling an arbitrator's grant of a 54 percent rate increase for Nationwide Insurance after the Office of Insurance Regulation rejected a request for an increase in excess of 70 percent.
State Sen. Don Gaetz, R-Niceville, said he intends to file legislation giving the state office more options for dealing with adversarial insurers and to eliminate the arbitration process for good.
Tuesday's hearing continued much along the same lines as Monday's, with testy exchanges between lawmakers and companies that have requested significant rate increases - Hartford and Florida Farm Bureau.
Executives from American Strategic Insurance, which has passed along its savings from the 2007 legislation and filed for a rate decrease of 24 percent, were lauded as "the white hat people" by committee co-chairman Geller.
Reporter Jerome R. Stockfisch can be reached at (813) 259-8402 or jstockfisch@tampatrib.com.
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