Insurance plan might fall short
Published: Saturday, January 13, 2007 at 6:01 a.m.
Last Modified: Saturday, January 13, 2007 at 12:00 a.m.
TALLAHASSEE — Florida lawmakers wish they could simply outlaw hurricanes. That would solve the state's insurance crisis.
Insurance ratesTo insure a 5-year-old brick masonry home valued at $150,000 with a 2 percent hurricane deductible and a $500 deductible for all other damage, Floridians last year paid about the following amounts for their coverage:
- State Farm:
Unfortunately, changing the weather seems easier than what legislators have on their hands.
As they return to the Capitol on Tuesday for a weeklong special session aimed at lowering Floridians' property insurance bills, legislators have a difficult balancing act. They need to make insurance affordable — and they have committed to passing legislation that will cut rates at least some for now.
But they also would like to fix the problem structurally, to avoid having to address it again each year. And they'd like to avoid chasing all private insurance companies away, leaving state government as Florida's only property insurer.
"I hope once the special session is over that we don't have to deal with this for a long, long time in our state," said Gov. Charlie Crist., who has staked the first impression of his new governorship on a successful solution. "And I know Floridians feel the same way."
But so far, many lawmakers acknowledge that much of what they have agreed to do this week will be a short-term fix. One of the plans that will bring the most immediate relief is to require the state's largest insurance company, state-created Citizens Property Insurance, to simply roll back rates to where they were last year, before an increase of about 20 percent.
While that will immediately bring some relief to the company's 1.3 million customers, it still won't deal with the underlying problem: Citizens didn't have near enough money to pay claims after the double-whammy hurricane seasons of 2004 and 2005.
Lawmakers are considering some ways to help Citizens collect more in premiums, namely allowing the company to sell other types of insurance, such as fire coverage, and allowing it to compete in all of Florida for more customers by selling insurance at market prices.
Currently, Citizens only covers those residents who can't find private insurance, and it is required by law to charge more than the private market. That was intended to keep the government company from competing with private companies.
Some private insurers now say the answer has to come in part from government putting up more money to insure the state's residents — because it doesn't pay taxes or make a profit. "The government can say, 'We don't expect a return on our capital,'Ê" notes George Grawe, vice president of Allstate Floridian.
That's something Allstate's shareholders absolutely won't let it do. "But when the storm happens, the money has to come from somewhere to pay these claims," Grawe said.
Lawmakers say the strictly private model isn't working in Florida anyway. Rates for wind coverage are getting too high for many homeowners, who have barraged their representatives with complaints about mounting bills. And while big insurance companies say they're losing money in Florida, residents see the companies' overall profits going up.
"It seems that citizens' needs have been put second to corporate profitability," said Cynthia DeRocher of Key West.
"This year they've made money," DeRocher said of the insurance companies, noting no hurricanes hit Florida in 2006. "There has to be a better system. I can't pay $12,000 a year for insurance."
Part of what Crist and lawmakers envision as a better system is likely to involve the state taking on much more of the risk, part of an effort to entice private companies. When risk goes down, so should premiums.
A proposal made by Democrats that has become part of the Senate's plan and is being pushed now by Crist is to have the state serve as a mega-reinsurer. The would guarantee that any losses above a certain amount — the current proposal is about $25 billion — would be picked up by government. Insurance companies would know what their maximum loss would be.
Supporters of the idea acknowledge that could put taxpayers on the hook for billions — but chances are slim that a megastorm like Andrew or Katrina will hit very often.
Expanding government's role and admitting that the private sector may not have all the answers has been tough for some Republicans who dominate the Legislature. But rising rates, and constituent complaints, have driven many to shift their thinking.
"It's not completely in line with my philosophy," admits Sen. Mike Haridopolis, a Melbourne Republican and one of the Legislature's most strident proponents of smaller government. But he isn't stuck in the abstract — his own insurance bill jumped from about $1,100 last year to $4,800.
"There are times of crisis where the government is the only viable option," Haridopolis said.
The state also picks up some of the risk at the lower end of the loss scale, through the Florida Hurricane Catastrophe Fund. Insurers pay into the fund, which helps pay claims when losses hit a certain amount. Lawmakers likely this week will make it easier for companies to tap into that fund for reinsurance.
The companies could then cut back on buying private reinsurance — which is more expensive than catastrophe fund coverage, and is driving up premiums.
Crist is practically demanding that rates go down. He says lawmakers must send him a bill that will lower rates, although he hasn't been clear on how much or how quickly, saying only that rate reductions must be broad-based and "meaningful."
The Senate and House drafted legislation this past week, and in the coming session will debate the ideas and work out differences.
Lawmakers are considering a couple ideas Crist pushed for during the campaign.
One takes aim at Florida-only subsidiaries of national insurance companies. A national company like Allstate is profitable, yet its subsidiary, Allstate Floridian, has sought higher rates and shed policies here because it lost money after the '04 and '05 storm seasons.
The House measure would prevent companies from creating Florida-only subsidiaries in the future, and require that state regulators consider national profits when evaluating current subsidiaries' rates.
Lawmakers are also considering not allowing some insurance companies to sell auto or other policies in Florida if they don't sell wind coverage.
And perhaps most startling to the insurance companies is language aimed at "excessive profits."
"We must require them to return those excessive profits to the policy holders," Crist said this past week.
Insurance companies bristle at that notion.
"Where are these excess profits that are going to be prevented?" said Allstate's Grawe.
That kind of antagonism may not help the problem, but make it worse, some insurance officials say. If they can't make enough money here to satisfy shareholders, they likely will continue to drop policies. That's bad for the state's residents, the companies argue.
"What's in the consumer's interest is a well-financed insurance industry that can pay claims," said William Stander, assistant vice president of the Property and Casualty Insurers of America.
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