Florida's Crist Caught Between Dueling Officials on Insurance Deregulation

June 5, 2009

If Florida Gov. Charlie Crist vetoes a bill designed to deregulate pricing for large national property insurers as appears likely, he will be siding with an appointed official over an influential lawmaker.

Crist, who is running for the Senate, will please Insurance Commissioner Kevin McCarty, who now regulates rates and who opposes the measure as unfair to smaller Florida insurers whose rates would remain regulated.

But he will disappoint a fellow Republican, state Sen. Bill Proctor of St. Augustine, who supports the measure partly as a way for the state to retain large carriers including State Farm, which has announced plans to withdraw.

McCarty and Proctor have authored dueling letters that explain their positions.

Giving large insurance carriers an exemption from rate regulation, McCarty maintains, would "disrupt" the state's insurance market that has seen rates stabilize over the past few years and some 40 new carriers with $4 billion in capital start operating. Also, more than 400,000 policies have been removed from the state's insurer of last resort, Citizens Property Insurance, and placed with private insurers.

"This [legislation] has the potential to harm consumers and investors who have worked in good faith to create a competitive marketplace that has benefited all Floridians," McCarty wrote.

The bill would mean higher costs for many policyholders, according to McCarty. "The result will likely be significant and unpredictable rate increases that, during these difficult economic times, people can simply not afford," he wrote in his letter to Crist.

While he expresses concern that policyholders could face higher premiums because of the bill, McCarty also suggests that not many policies will actually be written at the higher deregulated rates.

"...State Farm is overexposed in the homeowners market and will likely not offer coverage to many of its policyholders irrespective of its freedom to charge an excessive rate. In fact, State Farm and other companies may actually use excessive rates to effectively non-renew policyholders under the ruse of consumer choice," McCarty wrote.

McCarty says the bill would not solve problems related to State Farm's exit. State Farm blames McCarty's refusal to approve rate increases for its departure but McCarty maintains that State Farm is using that as an "excuse" for its exit strategy.

On the other side, Proctor questions McCarty's claims that the bill would disrupt the market or harm consumers. He says the measure simply gives some consumers the option of buying their insurance from large, well-capitalized insurance companies at likely higher rates.

The bill also promises to build claims-paying capacity by keeping State Farm and other large carriers in the state, according to Proctor, who has expressed concern about the financial ability of the smaller domestic carriers to withstand the state's hurricane-prone environment.

Proctor believes that McCarty has not explained how consumers would be harmed by the legislation.

"Because the rates for the new companies are regulated, one assumes that their rates will be considerably less costly than the dramatic increase you anticipate on the part of the national companies," he wrote.

Proctor wants the state to let consumer demand, or lack of demand, for policies from these large carriers run its course.

"You appear to question whether the provision of 'consumer's choice' is one of the basic objectives of the bill," Proctor wrote in challenging McCarty. "If such is not the case, there is even less possibility for the disruption of the new market. If, on the other hand..., there is a significant market for unregulated rates by well-capitalized national companies, such will result in the retention of considerable claims-paying capacity. Again, how would this be 'disruptive'? Surely, the state needs all the claims-paying capacity we can muster."

Proctor maintains that the hurricane-prone state needs the capital and participation of larger private insurers that the legislation targets.

"I find it difficult to accept that Citizens, 40 new companies, and what is likely to be a remnant of national companies comprise an adequate homeowner's insurance program, nor do I believe that such a program can be established in the absence of well-capitalized national companies competing on the basis of 'market-based' pricing," he stated.

McCarty's opposition to the legislation has come under fire from another lawmaker, who also wrote a letter.

Last month, Sen. Mike Bennett, R.-Bradenton, wrote McCarty that lawmakers can no longer trust his word. Bennett, the bill's Senate sponsor, wrote that McCarty had told him he would neither oppose the measure nor ask Crist to veto it. He also complained McCarty sent out a news release opposing the bill although his staff members testified to the Legislature that it was a public policy issue for lawmakers to decide.

"I find your professional behavior reprehensible,'' Bennett wrote.

Bradenton called on McCarty to resign or be fired but Crist has stood by McCarty.