Senate bill proposes insurance reforms - 03/31/2008
Law would freeze Citizens rates for another year
By Anne-Margaret Sobota
Citizen Staff
A state Senate committee has proposed a new law that would provide favorable reforms for Florida Keys windstorm insurance ratepayers.
If approved by the Florida Senate and House of Representatives, the bill would freeze current Citizens Property Insurance Corp. rates for an additional year, through Dec. 31, 2009, instead of the current deadline, at the end of 2008.
Heather Carruthers of Fair Insurance Rates in Monroe (FIRM), which spoke in front of the Senate Banking and Insurance Committee in favor of the bill last week, said the bill's provision are a "major victory" for FIRM, which has been seeking insurance reform for more than two years.
The bill also would prohibit Citizens and other insurance companies from raising rates by more than 10 percent in any given year for multi-peril policies, and 15 percent for windstorm-only policies for the years 2010 through 2012.
"Basically, we would never see increases that are 50 [percent] to 100 percent a year," Carruthers said. "We would only see increases that are 10 [percent] to 15 percent in a year."
The bill also proposes to permanently repeal the "use and file" practice by insurance companies. The Florida Legislature in 2007 passed a moratorium on the practice, but it will expire at the end of 2008. Previously, insurers could institute a rate increase before seeking approval from the Office of Insurance Regulation (OIR), which has the final say. This left many consumers stuck paying high premiums that were later disapproved, and refunds were not always forthcoming.
This bill also would give OIR access to the information that goes into the model building that insurance companies use. "We think that's really important -- greater transparency," Carruthers said.
According to a statement from Florida Insurance Commissioner Kevin McCarty, the bill also would give his office "greater ability to regulate insurance companies by way of increased enforcement authority and more control over the complete rate-filing and review process." The insurance regulation office would have more power in the types and amount of fines it would levy against companies that do not comply with requests or orders.
"One thing that we're really excited about is that (the bill) has eliminated the distinction between homesteaded and non-homesteaded properties in terms of assessments," Carruthers said. In the past, if Citizens had a deficit in one year, anybody that was non-homesteaded would have an additional assessment levied against them, she said. If that didn't cover the deficit, then the company would go to the homesteaded policy owners, then to all homeowners in the state.
"Now all Citizens policyholders will get that assessment," Carruthers said. "Everybody will bear the burden."
Carruthers also expects Keys rate payers to benefit from a provision involving mitigation credits because of the stringent building codes in Monroe County. "The other thing that we're pretty pleased about is that it requires mitigation credits to be tied to the uniform home rating scale so that there's some uniformity in how insurers expect a home to withstand homes and what kinds of credits they will issue to homeowners," she said.
Another amendment discussed by lawmakers is the elimination of the million-dollar home exemption. A former Florida House bill mandated that homes valued at over $1 million could not be insured by Citizens. Lawmakers want to change this based on research that shows homes valued at more than $1 million pose less risk because they tend to be better built and have a higher deductible.
The bill still faces several hurdles before becoming law. "There's always the chance that the house will be intransigent and the thing will just stall," Carruthers said. "But the house as a whole understands that we can't just let this freeze expire right now."
There are some provisions in the bill that FIRM is not fully satisfied with, including an amendment that would eliminate the option of wind-only policy from Citizens.
As it now stands, many homeowners in coastal areas maintain a multi-peril policy with private insurers because their rates are typically lower than Citizens. But if this measure passes, residents in the Florida Keys would have to switch all their policies to Citizens because they are unable to get windstorm insurance, which is required by banks to get a mortgage, through these private carriers that they might have fire or flood policies with, for example.
There are other issues on the horizon, too. Carruthers said Florida Chief Financial Officer Alex Sink wants to try to limit the risk to the state by reducing the size of the CAT fund by $3 billion. "We might have thought that would have a negative impact on rates," Carruthers said. "But what's been happening in the last two years is the private insurance market is starting to come back in and offer reinsurance at more reasonable levels."
Firm also is still pushing a bill that would allow windfall sales tax revenue to be used to fill deficits. In 2005, more than $4.2 billion in unexpected sales tax was generated in following rebuilding efforts after four hurricanes struck the state. "There no legislation out there on this, but we'd love to find somebody out there who would sponsor such a piece of legislation," Carruthers said.
