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TALLAHASSEE, Fla. – May 15, 2009
– Representatives from Florida’s property insurance industry
sent out a warning signal Thursday about the state’s inability
to pay for damages from a serious storm in the future.
During a morning conference call, officials from the Florida
Association of Insurance Agents and the Consumer Federation of
the Southeast said that the state faces putting consumers at
great risk through property insurance rates that are being kept
too low.
“In our state government’s pursuit of artificially low rates,
Florida has, in essence, created a fragile system of insurance
that leaves Florida homeowners and taxpayers at great financial
risk,” said Jeff Grady, president and chief executive officer of
the Florida Association of Insurance Agents. “And we’re really
one large storm away from some very difficult circumstances.”
Grady said that the get-tough stance on property insurance rates
initiated by legislators and Florida Gov. Charlie Crist in 2007
has only served to drive away private insurers and leave
carriers who remain with policy premiums that can’t sustain
claims payments from future hurricanes.
But Ed Domansky, a spokesman for the Florida Office of Insurance
Regulation, which sets insurer rates in the state, said he
believes the rate discussion has been overblown.
Domansky said every insurance company is treated equally by the
agency in terms of determining rates needed to maintain
financial solvency.
“So whether it’s State Farm, Allstate or a new company, they
must all meet the same strict solvency standards,” Domansky
said.
And despite what some in the industry say, there is still
competition and enticement to do business in Florida, Domansky
said.
“There is competition in the market,” Domansky said. “Some
people seem to be portraying this as, ‘If you don’t have State
Farm you have Citizens.’ That is completely incorrect. We’ve had
about 30 new companies since 2006. There is choice. There is
competition.”
A survey of private insurers in the state revealed that in 2008,
a year with no severe windstorms, 40 percent of insurers showed
profit losses, Grady said. He acknowledged, however, that some
of those losses were attributable to investments the companies
lost money on during the economy’s downturn.
The much-publicized $12 billion deficit in the Florida Hurricane
Catastrophe Fund, which provides backup insurance for property
insurers in the state, is further proof that the state is
ill-equipped to handle a major hurricane, Grady said.
Consumer advocate Walt Dartland, executive director of the
Consumer Federation of the Southeast, warned that taxpayers and
policyholders could be saddled with enormous debt should a storm
like 2005’s Hurricane Katrina hit Florida.
“The consumers face a serious dilemma here,” Dartland said. “It
is either pay now or pay later,” he said. “We can’t afford as
consumers to turn our backs on the realities of the market. If
we don’t do this (allow higher rates), the worst scenario is
that in Florida we will have a hurricane like Katrina and we
will have a disaster like we had in New Orleans. And that is
something we simply can’t afford.”
Grady said state-created Citizens Property Insurance Corp. must
also have rates that are commensurate with the market to allow
more competition in the state.
Legislators have proposed incremental increases in Citizens
rates – the first being a statewide increase of 10 percent.
However, industry experts have said Citizens’ rates should rise
anywhere from 40 to 55 percent to be considered actuarially
sound.
FAIA Executive Vice President Scott Johnson said a Senate bill
sponsored by Bradenton Republican Mike Bennett that is now
before the governor that would deregulate rates of certain
insurers is encouraging but still has problems. Specifically,
Johnson said the bill’s proposal to allow “what the market will
bear” rates from certain large insurers, while denying that
freedom to smaller players, will kill competition.
“It deregulates a few select insurance companies who may qualify
but it does so at the expense of others who don’t,” Johnson
said.
Still, Johnson said it was encouraging that the discussion of
rate revisions was taking place.
Bennett said he understood the fear that his bill may hurt
competition but believes it’s unfounded.
“I would have to say that may be a valid concern but my concern
was, if we were going to deregulate the rates, we would have to
do this for at least two years to make sure it worked,” Bennett
said.
“So we wanted to do that with the bigger companies at first.”
Bennett added that by “bigger companies,” he meant the national
insurers and not their spin-offs in Florida, often called “pup”
companies.
“Even State Farm of Florida does not qualify for these rates,”
Bennett said. “They have to bring the national company back in.
We wanted it so the bigger companies would have to play.”
Copyright © 2009 The Bradenton Herald, Fla., |
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