TALLAHASSEE, Fla. – Jan. 24, 2007 – As state lawmakers debated and cheered the property insurance savings they are bringing to their districts, insurance lobbyists sounded alarms Monday about the cost to their industry and ultimately to consumers.
Much of the grumbling centered on Citizens Property Insurance, which the Legislature agreed to expand by permitting the state-backed insurer to compete with private insurers to sell multiperil policies covering risks such as fire and theft. Selling those insurance lines will enable Citizens to lower its property insurance rates because multiperil policies are more lucrative.
Lower rates or not, expect to see private insurers fight Citizens’ expansion.
“I think we’re going to urge the traditional philosophy that Citizens ought to be the insurer of last resort,” State Farm lobbyist Mark Delegal said.
He described the change as “the biggest long-term threat to the private insurance market.” The playing field is unfair, he said, given Citizens’ advantages as a quasigovernmental entity such as its tax-exempt status and suppressed rates.
“We won’t leave our customers; they will potentially, hypothetically, make a decision to leave us,” Delegal said. “Long term, it could be devastating.”
State betting storm won’t hit
The Property Casualty Insurers Association of America ran full-page advertisements in the Sunday Miami Herald, Tallahassee Democrat and St. Petersburg Times criticizing the legislation. According to the ad, the state and its policyholders are assuming too much risk by expanding Citizens, “mortgaging our economic future on the hope that a major storm won’t strike anytime soon.”
In one bad season of two or three storms, assessments to cover the state’s expanded liabilities could exceed $2,500 for a single policyholder, said William Stander, assistant vice president of Property Casualty Insurers.
“I understand what they’ve done; they’re trying to deliver some short-term rate relief,” Stander said. “But they’re doing it on the backs of your kids and mine.”
The Legislature is betting on a massive storm not hitting in the near future, agreed Sen. Jim King, R-Jacksonville. If a 100-year storm were to hit, the state would have to tap into every available source of revenue, not only assessing policyholders but also probably raising taxes and looking to the federal government for help.
“Everybody knew that everybody was going to have to play with a little bit of pain,” King said. “Nobody was going to be singled out as a sacred cow. We’re of the opinion that we did just enough harm to everybody, and just enough good to everybody, that we can make a difference.”
Even in the House, which resisted allowing the Citizens expansion until the final hours of negotiations, lawmakers betrayed no second thoughts.
“The industry has market share and, like any business, they don’t want to give that up,” said Rep. Stan Mayfield, R-Vero Beach.
People in monopolized markets have no choices now, which undermines the free-market argument, he said. “In a real true sense, we are calling the industry’s bluff about the markets they say they could pull out of.”
With the state providing low-cost reinsurance to private insurers, covering their losses in the event of a catastrophic storm season, King predicted that the number of private insurers will gradually rise in Florida, not fall.
Reining in profit called ‘punitive’
Delegal called a provision to ban insurance companies from making excess profit a “punitive” slap at the industry that could jeopardize its ability to keep rates down and cover damage.
“You’ve got to make substantial profits in nonwind years so that you can pay extraordinary losses,” he said. “You want me to make $100 million in a year so I can pay $2 billion a year when the wind blows.”
It will be up to the Office of Insurance Regulation to determine what profit is excessive, said Rep. David Rivera, R-Miami. “It’s like when the Supreme Court ruled on pornography. The Supreme Court judge said, ‘I can’t define it, but I know it when I see it.’ I think OIR will know excessive profits when they see it.”
Insurance companies will also be re-evaluating their presence in Florida in light of the so-called cherry-picking provisions, requiring companies that sell auto insurance in Florida to also sell homeowners insurance here if they sell it elsewhere.
Asked if the industry will mount a counterattack to tear out the provision during a future session, Stander demurred, saying companies first will watch how the new rules are implemented.
Rep. Jack Seiler, D-Wilton Manors, a key negotiator of the bill, said the insurance lobby took more than one heavy knock this week. “But I’ll be honest with you, for once it’s nice to hear the industry complain and not the consumers.”
