Report: Florida Needs Property Insurance Reform

Published December 15, 2009

Insurance company rating firm Demotech, Inc. has released new information on the failures of three Florida property insurance writers. The report, “Recent Developments in the Florida Property Insurance Market,” highlights the need for meaningful reform in Florida’s property insurance market.

“We haven’t had hurricanes, and [yet] we have companies failing,” said Sean Shaw, Florida’s Insurance Consumer Advocate. “This is very disturbing.”

A Florida bill that passed both houses would have allowed a handful of large, well-capitalized national insurers to charge deregulated rates, a step toward stability in the state’s volatile property insurance market, said Florida Representative William L. Proctor (R-St. Augustine).

Governor Vetoed Reform
House Bill 1171, known as the State Farm Bill, was vetoed by Gov. Charlie Crist (R) in June.

In his veto message, Crist argued the bill did not increase consumer choice but “actually gives the ‘choice’ to a select group of property insurance companies and allows them to decide who they are willing to sell a non-regulated policy. 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.”

Proctor has filed a new version of the bill that would allow all licensed, admitted insurance companies to charge deregulated rates.

Low Rates, Heavy Regulation
Shaw said companies’ inability to charge high enough rates is just one factor contributing to Florida’s “sick” property insurance market. Insurers also face onerous regulatory burdens and are hamstrung by the expansive market share of Citizens Property Insurance Corp.—Florida’s underfunded, state-backed insurer—which distorts the state’s property insurance market by charging artificially low prices.

“We have companies failing, various large national insurers leaving, an inability to attract new capital to the state, and a lack of availability of policies,” said Shaw. He added, “We need a blend of large, medium, and small companies. It’s in everyone’s interest to get Citizens smaller. The kneejerk answer is to raise rates. I don’t think it’s just rate increases.”

Right Step
Proctor said allowing Florida insurers to set deregulated rates is a step in the right direction.

“As long as we suppress rates below actuarially sound levels, we’re going to have problems,” he said.
Even without this legislation, Barry Koestler, Demotech’s Senior Financial Analyst and Chief Ratings Officer, said he already sees positive steps in Florida’s property insurance market.

“A number of companies are filing for rate level increases,” he said. “And the Florida Office of Insurance Regulation is inclined to grant some of them.”

Arin Greenwood ([email protected]) is a writer and lawyer in Alexandria, Virginia.

Internet Info

“Recent Developments in the Florida Property Insurance Market”: