Insurance deal offers big savings
Published: Monday, January 22, 2007 at 6:01 a.m.
Last Modified: Sunday, January 21, 2007 at 11:59 p.m.
TALLAHASSEE — By betting the state's financial future that major storms won't hit Florida, lawmakers agreed late Sunday on a plan that would cut rates for most property insurance policyholders up to 35 percent or more.
Property insurance changes
- Private insurers will be allowed to purchase coverage from the state that will cover losses up to $28 billion in one hurricane season. The cheaper reinsurance will allow private insurers to cut rates by up to 35 percent and state-run Citizens Property Insurance to cut rates by up to 20 percent. But the cuts come with a risk of higher payments by all property insurance policyholders in case of catastrophic storm damage.
- Houses built in the Panhandle will now have to be built to the same standards as the rest of the state, a move that may help all Floridians.
- Two pending rate increases for Citizens policyholders totaling nearly 80 percent will be repealed. The law that Citizens must charge more than any other insurer will also be repealed.
- The CEO or CFO of insurance companies must sign an oath promising that information given to the state supporting proposed rate increases is factual.
- Effective January 2008, insurers that offer homeowners policies in other states and only auto insurance in Florida must also sell property coverage in the state.
- Property owners will be allowed to lower their premiums by choosing a higher deductible, but only with approval of the mortgage lender. Insurers must offer policies that exclude coverage of personal items and exclude windstorm coverage, an effort to make cheaper premiums possible.
- Policyholders will be allowed to pay annual premiums in installments.
- Insurers will be required to provide at least 100 days notice of intent to drop a policyholder's coverage.
To get there, lawmakers agreed to changes to state law to be voted on today. The biggest change moves to cut rates and includes letting residents assume much of the burden if a major storm season hits.
Lawmakers are almost certain to approve the measures today and Gov. Charlie Crist is likely to sign it into law soon. It marks a philosophical reversal for a Legislature that less than a year ago passed a law that required higher insurance rates in order to entice private insurance companies back to the state.
Whether it will be enough to keep people in their homes and businesses operating in the state may become clear as the changes take effect in the coming months.
"We stopped the hemorrhaging," said Rep. Dan Gelber, D-Miami Beach. "The problem with a lot of this is understanding what the relief will be. For some people, even a 20 percent reduction doesn't make their windstorm insurance affordable. We clearly are not delivering a panacea to anybody and it's still going to be a drag on our economy."
The relief was necessary not only for any politician hoping to keep their job but also to keep Florida's fiscal health from flat-lining.
"You have enhanced a pillar of our economy," Senate President Ken Pruitt, R-Port St. Lucie, told lawmakers Sunday as they finalized the insurance bill. "This had the ability to bring Florida's economy to its knees."
The biggest winners of the special insurance session may be customers of state-run Citizens Property Insurance.
Lawmakers killed two proposed rate increases that would have raised the average premium by 80 percent. And lawmakers promised a rate reduction for Citizens' customers, an average of up to 20 percent by various means including lower reinsurance and more affordable government bonds.
Customers of private insurers may see rate cuts up to 35 percent, Gelber said. But a spokesman for the largest private company in Florida, State Farm, said cuts might be closer to 20 percent for their customers.
Insurance companies still feel the rules passed Sunday are too restrictive, said State Farm spokesman Justin Glover.
"There's a lot of stuff in the bill that we believe will ultimately serve as barriers to the private market," he said. "We have a lot of concerns."
The tradeoff for the rate cuts is increased state involvement in the complex world of reinsurance, the coverage for insurance companies in case of a year of storm damage in excess of $3 billion.
Lawmakers agreed to let the Florida Hurricane Catastrophe Fund offer reinsurance coverage for possible losses up to $28 billion in one year, $16 billion more than the state currently covers.
Because the state will sell the reinsurance at a cheaper rate than the private market, insurers will save money and have to pass the savings along to consumers.
The state will make up for the extra $16 billion cost through fees charged on all property insurance policies sold in Florida, government bonds and a small charge insurers will pay to buy the extra reinsurance.
But if the Hurricane Catastrophe Fund has to pay money out to insurers after a major storm, all property insurance policyholders around the state would pay to refill the fund.
Floridians may see higher insurance costs in other ways as well.
At the last minute Sunday, lawmakers decided to allow the state to charge fees not only on all Florida homeowner policies but also on any fire, theft or car policies sold in the state to fund the Citizens homeowner insurance program.
The fees will only show up on bills if a major hurricane hits and Citizens runs out of money, however.
The plans are heavy on immediate relief for Floridians, but light on forcing serious changes to the state's costly habit of building in areas ripe for hurricane damage.
Sen. J.D. Alexander, R-Frostproof, was one of the few lawmakers arguing that the state's deeper involvement in the insurance business was a recipe for disaster.
"I hope we go a decade with no major storms. If we don't, this weekend we would have made the problem worse and not better," he said, before adding that the risk to the state's economy posed by exploding insurance rates made a radical change necessary.
One of the more contentious issues was a proposal endorsed by Crist that would have allowed Citizens to compete statewide on all lines of insurance including fire and theft.
The House refused to back such a radical move, instead demanding a business plan from Citizens that would need legislators' approval and limiting its expansion only to coastal areas.
Crist also got little of what he promised on the campaign trail last year during the special session last week.
Lawmakers did not agree with Crist's proposals to freeze all rates for two years and virtually force all insurers to keep their customers for four years.
The two campaign promises by Crist that required legislative approval also largely bit the dust. Lawmakers denied Crist's plan to require national insurers to shut down their Florida-only subsidiaries that set rates without considering billions in national profits.
Crist's "cherry picking" plan to force insurers that offer property insurance coverage in other states to also offer it in Florida was limited to companies that only sell auto insurance in the state.
But Crist's hands-off style, bolstered by sometimes angry reminders to lawmakers that customers needed protection from "profiteering" insurance companies, seems to have been successful in his first test as governor.
As remarkable as the session's results was the way lawmakers got there. In a process generally dominated by Republicans who rule the House and Senate by a nearly 2-to-1 margin, Democrats took a leading role in working out details in 20-hour work days this weekend. "On this one at least, the team was not your party, it was the people of this state," said House Speaker Marco Rubio, R-West Miami. "We know this is a difficult issue we'll be dealing with for years to come."
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