Gov. Crist’s Veto Limits Insurance Choices for Florida

Published August 31, 2009

Florida Gov. Charlie Crist (R) has vetoed a bill that supporters said would have improved the state’s property and casualty insurance market.

The legislation, House Bill 1171, also known as the Consumer Choice Bill, would have allowed well-capitalized insurers greater freedom to set rates. Supporters of the bill said allowing insurers to set rates actuarially, based on risk instead of political pressures, would have improved the solvency of the state’s insurers. More insurers also would have been attracted to Florida, supporters said.

State Farm Insurance Co., one of the nation’s largest home insurers, had announced plans to pull out of Florida and reaffirmed that decision after Crist’s veto of the reform bill. The firm said its decision to pull out of Florida was based on rate restrictions imposed by the state and on competition from a state-run insurer whose insurance premiums are undercutting private insurers’.

‘Effort to Encourage Companies’

“Gov. Charlie Crist unwisely vetoed legislation designed to restore Florida’s property insurance market and protect the state from the financial ruin that could occur in the event a severe storm or series of storms struck a major urban area,” said Robert Sanchez of the James Madison Institute, a Florida think tank.

“The vetoed legislation would have given consumers the opportunity to purchase property insurance from strong, national companies that charge actuarially sound rates,” Sanchez added. “The vetoed bill was a welcome effort to encourage those companies to remain in—or return to—Florida’s battered property-insurance market.”

In his veto message, Crist wrote, “These select property insurance companies will be able to cherry-pick, or sell only to profitable policyholder risks, while at the same time offloading their undesirable policyholders that are higher risk to their competitors and Citizens Property Insurance Corp.,” the state-run insurer.

Citizens has become the largest homeowners insurer in Florida, with more than one million policies in force, largely because State Farm and other large insurers have been pulling out of the state.

Support for Governor

The Florida Property and Casualty Association supported the governor’s veto.

“The FPCA fully supports a fair and open marketplace, but this legislation would have had the opposite effect,” the organization said in a statement. “It would have given certain larger insurance companies an unfair business advantage by allowing them to cherry pick policies in the lowest risk areas of the state while quoting more expensive unregulated rates in higher risk areas. At a time when insurance rates have stabilized and a time of economic uncertainty for many people, this bill would have further diminished affordable choices for Floridians and would have eventually dumped more policies into the state-run insurance program Citizens.”

‘Driven Away by Current Policy’

Christian Cámara, director of the Florida Insurance Project at the Competitive Enterprise Institute in Washington, DC, said many of the arguments made by opponents of the bill were empty rhetoric.

“The bill would not have forced anyone to pay higher rates as was argued by its critics,” Cámara said. “Instead, the bill would have expanded Floridians’ choices when it comes to insuring their property, by giving them the option to do business with well-capitalized, nationally recognized carriers that are largely driven away by current policy.”

Sanchez said he believes the veto could in fact result in higher insurance premiums for many Floridians.

“Ironically, as a result of the veto many homeowners will now have to pay substantially more for insurance than they would have paid had Florida relaxed its unrealistic rate regulations and allowed consumers a wider range of choices,” Sanchez said.

‘Will Face Insolvency’

Sanchez and Cámara agree the veto would continue the state’s over-reliance on its state-run property insurer.

“Presently, most coastal homeowners are insured through the state’s public insurer, Citizens Property Insurance Corporation, which actuaries predict will face insolvency after a major hurricane or series of hurricanes,” Cámara said. “Such an insolvency would be met by major claims-paying delays as well as taxpayer bailouts.”

Sanchez argued the reform bill could have benefited Florida’s insurers and consumers.

“While not perfect nor a complete fix, the bill would have been a first step toward restoring the property insurance market in Florida,” Sanchez said. “It also would have been a sign of good faith to homeowners and the industry that Florida’s leaders are actively seeking solutions to this debilitating problem.

“Vetoing the bill discourages existing well-capitalized, national companies from continuing to offer policies in Florida [and] discourages new, sound entries to the market,” Sanchez continued. “It also diminishes consumer choice, the state’s insurance capacity, and the availability of private capital in the event of a major storm.”

‘Only Viable Solution’

The key to the bill, according to Cámara, was its focus on providing additional choices for consumers, some of whom likely would have been willing to pay a higher price for a plan offered by an insurer with an established track record.

“This market-freeing legislation would have given all residents, including those on the coast, better options to insure their homes and lessened the likelihood or severity of a taxpayer bailout due to the outside capital it would have attracted back to the state. Through this latest veto, Gov. Crist confirmed his contempt for the free market, which is the only viable solution to this state’s insurance crisis,” Cámara said.

Matthew Glans ([email protected]) is a legislative specialist for insurance and finance at The Heartland Institute.

For more information …

“Property & Casualty Insurance 2009 Report Card,” The Heartland Institute: