Florida Lawmakers Probe Insurers; Take No Action… Yet

After two days and 18 hours of testimony, it was unclear what state policymakers plan to do next

Revelations of near insolvency, pending non-renewal of thousands of homeowners’ policies, the use of short-term storm forecast methods and disclosure of executive salaries were all broached at two days of hearings in Florida’s Senate chambers earlier this month.

Lawmakers did not like all of the answers they got from giants Allstate and The Hartford over their rates and rate-setting. Single-state American Strategic Insurance Co. emerged as the darling of the elected officials.

Sen. Jeff Atwater, R- North Palm Beach, and Senate Democratic Leader Steve Geller, D- Hallandale Beach, co-chairs of the Senate Select Committee on Property Insurance Accountability asked five insurers operating in Florida to present testimony. The stated purpose was to answer questions about practices and experiences in complying with the property insurance law (HB1A) passed in 2007, and their rate filings with the state Office of Insurance Regulation.

The two senators said the ultimate goal of was to have an informative dialogue on lessons learned in implementing last year’s legislation and to “identify opportunities to enhance the property insurance market and promote the safety and security of homeowners in this state.”

Executives of Allstate Floridian Insurance Co., a subsidiary of Allstate Insurance, were the first to testify. It didn’t go too well.

Referring to what he felt were Allstate executives’ evasive answers to questions posed by Florida senators on Feb. 4, committee member Sen. Bill Posey, R-Rockledge, said he hadn’t seen so much bobbing and weaving “since Muhammad Ali’s rope-a-dope.”

Atwater repeatedly asked the Allstate team, led by Chief Executive Officer Joseph Richardson Jr., to explain a footnote attached in an Allstate Floridian PowerPoint presentation. According to Atwater, the footnote appeared to indicate that if indications were that the insurer should reduce rates based on the 2007 legislation, then the company should invoke an accelerated short term forecasting model — one that ultimately resulted in a 43 percent rate increase filing.

The use of short term forecasting models was questioned over the two-days and prompted the committee to set another meeting for Feb. 19 where representatives of AIR Worldwide Corp., a forecast modeling firm, were to testify.

Ryan Michel, Allstate Floridian chief actuary, said using a short term model to “supplement” a long term model was a case of using “the latest and greatest science” to arrive at a rate that would support the company’s risk exposure in Florida.

The Allstate executives revealed that Allstate Floridian is on the brink of insolvency and has posted no profit in recent years. The revelation prompted Sen. Ronda Storms, to ask CEO Richardson how much he earns per year. After a brief consult with an Allstate attorney, the executive testified that his annual salary is “confidential.”

The Hartford Group executives testified that they would implement a homeowners’ non-renewal program in Florida beginning in August. The year-long effort will affect 27,000 customers, according Tom Johnston, senior vice president and chief actuary.

Committee member Sen. John Alexander asked Johnston if an approved rate increase would persuade the company to reconsider.

But Johnston indicated it would not, saying profitability in Florida is not foreseeable for an extended period of time.

The 27,000 represent about a third of Hartford’s homeowners’ policies in Florida.

Committee Co-chair Geller introduced the fifth group to present testimony on the last day of the hearings by saying, “They will leave us with a good taste in our mouth.”

He was speaking of Florida-based American Strategic Insurance Co., which was hailed as a hero. As senators tripped over each other to praise the 10-year old domestic insurer, others offered caveats.

While agreeing that the compliments of ASI were well deserved, Jeff Grady, president of the Florida Association of Insurance Agents, said ASI is its own managing general agency and, as such, garners $25 per policy in addition to the allowed 3.7 percent profit on premium, based on the OIR presumed factor calculations.

The $25 per policy — adding up to $6.25 million — was not discussed at the hearing. And while ASI said it has approximately 250,000 homeowner policyholders throughout the state, company officials also said that they have topped out at that number and are not planning to stretch any further in Florida.

The OIR approved two ASI rate increases totaling 39.5 percent in 2006 prior to the passage of HB1A in January 2007, prompting committee member Sen. Ted Deutsch, D-Delray Beach, to ask ASI CEO John Auer if the company’s current good standing was a matter of timing.

Auer said his company has always kept up to date with expense needs. Auer told the committee that his company is profitable and healthy, but that only 4 percent of his company’s policies are written in Broward, Miami-Dade and Palm Beach Counties — the state’s highest and most concentrated risk exposure.

Still, the senators made no bones about their admiration to Auer for apparently following the mandates of HB1A to a “t.” Two days after HB1A became law, ASI submitted a rate filing of 3.7 percent. In September, ASI decreased rates 9 percent.

Auer said his company does not use a short or near term forecasting model, prompting additional kudos from the Senate committee members.

According to a Florida Senate spokesperson, there were no bills or reports issued as a result of the Feb 4-5 hearings. After nearly 18 hours of testimony, Sen. Atwater said the goal of the hearings was to try to provide a vibrant insurance market with affordable products. “So we press forward,” he said.