Dramatic insurance rate cuts proposed

Published: Thursday, January 11, 2007 at 6:01 a.m.
Last Modified: Wednesday, January 10, 2007 at 11:53 p.m.


What could happen

Here are some of the key features of the House and Senate insurance bills, which lawmakers say could reduce windstorm insurance rates by 25 percent to 40 percent.

  • The Senate wants to cap the amount of damages insurance companies would have to pay if a mega-hurricane hit the state. The cap could result in rate cuts of 33 percent to 40 percent, although taxpayers would have to pick up damages in excess of the cap.
  • The House would cut rates by 25 percent by making it easier for insurance companies to buy reinsurance from a state catastrophe fund rather than the private market. If the insurance companies use the fund, they have to pass on the savings to consumers.
  • The House would ban the future creation of Florida-only insurance subsidiaries. Critics say the use of so-called Florida ''pup'' companies leads to higher rates since a company's national profits are not considered.
  • The House would prohibit ''cherry-picking'' by the industry, requiring insurance companies that sell other types of coverage in the state, such as auto, to sell property insurance if they are offering such services in other states.
  • The House and Senate would eliminate rate hikes imposed by the state-run Citizens Property Insurance Corp., including a pending 56 percent increase for this year.
  • The Senate and House would eliminate an exemption from a strict state building code that now exists in the Florida Panhandle.
  • The House would prohibit the non-renewal of insurance policies during the hurricane season.
  • The House would strengthen the regulation of insurance companies by prohibiting ''excess profits.''
  • The House and Senate would require insurance company executives to sign a legal oath when submitting documents to the state.

  • TALLAHASSEE - The property insurance crisis has caused a startling shift in public policy in the state capital.
    And the result is likely to be dramatically lower insurance rates for Floridians, coupled with the risk that taxpayers could potentially face a huge bill if the state were hit by a mega-hurricane. Senate leaders are now promising a rate cut in the range of 33 to 40 percent for Floridians, while the House has a plan that would cut rates by 25 percent. The rates have skyrocketed since Florida was clobbered by hurricane in 2004 and 2005.
    The bills will be considered by lawmakers in a weeklong special session that begins Tuesday.
    The rate cuts are built on the premise that the state should take a much stronger role in regulating insurance companies and in providing financial support if the state is hit by more hurricanes. But the new philosophy is nearly a complete reversal from last year's Legislature that passed an industry-friendly bill that led to massive rate hikes across the state.
    Lawmakers say the reality of unaffordable property insurance has caused their change in thinking.
    ''We understand the realities that (the insurance crisis) is doing to our economy,'' said House Speaker Rep. Marco Rubio, R-Miami. ''Circumstances change and we think we're doing what's right for January 2007.''
    On Wednesday, Senate leaders added another major feature to their insurance bill by announcing that the state would essentially cap the damages insurance companies would have to pay if the state were hit by a mega-storm or series of major storms.
    By capping damages, perhaps in the $24 billion range, senators said the insurance companies would have absolute certainty over their exposure in the hurricane-plagued state and would lower their windstorm rates, knowing they wouldn't be responsible for a Katrina-type storm.
    ''What insurance companies need is predictability,'' said Sen. Steve Geller, D-Hallandale Beach, a key architect of the proposal. With the cap, the companies ''have indicated they will come up with dramatic rate reductions,'' he said.
    The downside to the Senate proposal is that Florida taxpayers would have to pay for most of the damages from a mega-storm that exceeds the $24 billion.
    But based on computer modeling used by the industry, Geller said that isn't likely to happen soon. He said the odds were that such a mega-storm would occur only once every 75 years. ''It's unlikely to hit in anybody's lifetime in this room,'' he said.
    However, many key details of the Senate plan remain unclear. For instance, senators haven't yet decided whether the cap would apply to individual storms or if the cap would be in place for the entire hurricane season.
    They also indicated the rate cuts were not likely to occur before July 1.
    Nonetheless, the cap - with its promise of dramatic cuts - will now be part of the Senate insurance package, which has strong bipartisan support in the 40-member chamber.
    On Wednesday, House Republicans unveiled their own set of insurance reform bills that they say could cut rates as much as 25 percent. The proposal quickly drew praise from consumer advocates and House Democrats, who strongly opposed last year's legislation.
    House Democratic leader Dan Gelber of Miami Beach said both the House and Senate leadership have ''rejected outright'' the former notion that insurance companies needed the ability to raise their rates to make Florida's market more attractive to companies.
    ''The folks that said let the market correct itself seem to have lost at least on the eve of the special session,'' he said.
    The House proposals mirror promises Gov. Charlie Crist made on the campaign trail and take aim at the way insurance companies do business in Florida.
    The House proposal - like the Senate's - would prevent a 56 percent rate increase in the state-run insurance program and repeal the rate increases for customers that went into effect Jan. 1 for Florida's largest insurer, state-created Citizens Property Insurance Corp. The company sells policies to those who can't get private coverage.
    But the House plan would also replace all of Citizens' board members and make sweeping changes to the insurance industry, which some lawmakers considered unrealistic only weeks ago.
    Under the plan, the state would sell cheap reinsurance to insurance companies. Reinsurance is the coverage insurance providers have to buy to protect themselves from massive losses.
    But the House plan only allows the companies to buy the cheaper reinsurance if they agree to pass all of the money they save on to customers.
    Lawmakers said the plan could save homeowners as much as 25 percent off of their insurance bills.
    ''It's the most consumer-friendly and pro-homeowner legislation that we have ever considered,'' said Majority Leader Rep. Marty Bowen, R-Haines City.
    The plan also takes aim at Florida-only insurance subsidiaries, the companies that allow national insurance firms to base their rates only on the risks in Florida, while protecting the massive profits they make in other states. The House members said they want to ban the future creation of the subsidiaries altogether.
    National insurance firms would also be prevented from selling other coverage in Florida, such as car insurance, as long as they continue to refuse to write homeowner policies in the state.
    Putting an end to that so-called ''cherry-picking'' and the Florida-only subsidiaries were two of Crist's major campaign promises.
    Crist, who is scheduled to release his own insurance plans today, said he was ''very encouraged'' by the legislative proposals.
    The newly elected governor said he woke up at 3 a.m. Wednesday ''thinking about this stuff.''
    ''It's frightening, isn't it? Talk about a nightmare. It's been a nightmare for a lot of people,'' Crist said.
    Rubio on Wednesday dismissed fears that the House reforms as proposed could scare insurance companies out of Florida.
    ''It's not like we have a rush of companies coming in as we speak,'' he said.
    Industry officials were cautious in their reaction to the overall House plan. Companies have long threatened that if Floridians insist on lower rates, insurers will leave. And several companies have dropped policies recently.
    ''Be very careful,'' Florida Insurance Council spokesman Sam Miller urged legislators. ''Please don't destroy the private market.''
    Joe Follick of The Sun Tallahassee Bureau and the Associated Press contributed to this report.

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