Fla. House Panel Moves Bill Banning Fla.-Only Insurer Subsidiaries

National insurance companies would be prevented from setting up new, Florida-only subsidiaries under a bill a House panel approved Monday, part of an effort to force property insurance rates lower to appease angry residents.

In a further nod to consumers— many of whom say their homeowners rates remain too high — the panel also defeated an effort to take away state regulators’ ability to reject rate increases it considers excessive.

Florida-only subsidiaries, sometimes called “pup companies,” have been the target of Gov. Charlie Crist, who argues they allow insurance companies to insulate their national profits when rates are considered for customers in Florida, where the subsidiary may have lost money because of hurricanes.

A bill (HB 1267) that would prohibit new pup companies from being set up in the future was approved by the House Policy and Budget with a 22-6 vote.

The bill, sponsored by Rep. Julio Robaina, also would allow state regulators to take into account the profits of national companies when considering the rates of existing pup companies.

“When they have a satellite company, that’s not spreading the risk,” said Robaina, R-Miami.

Insurance companies argue that risk is supposed to be spread among people with like risks. And with insurance regulated state-by-state, it’s not realistic to ask regulators to force homeowners in the Midwest, for example, to subsidize Florida’s hurricane risk.

The council rejected a provision, however, that would have spelled out exactly how much profit a national company could have. That would have prevented Florida rate increases when the parent company made a 15 percent profit or more. Several members of the committee said that seemed too arbitrary.

Robaina said that issue would likely resurface when the bill gets to the House floor, it’s next stop.

The committee also rejected a part of Robaina’s bill that would have extended a freeze on rates for Citizens Property Insurance, the state-backed company that is Florida’s largest insurer, until January 2009.

Also stripped from the bill was another provision that would have made it easier for people to choose to go into Citizens when private companies’ rates are higher.

Crist said he was concerned that the panel removed those provisions, which he considers consumer-friendly.

The Legislature has largely stayed away from property insurance this session, having just revamped the insurance laws in a special session in January.

But a few lawmakers are starting to argue that the move in January, while it may provide short term relief to consumers, was a mistake that in the long run will put residents on the hook for enormous losses. The changes essentially sought to shift much of the risk for storm losses from private reinsurance companies, who charge high premiums, to the state, which is doing so at much lower cost.

The new law also shifts more risk away from private insurers and into state-backed Citizens, which might not be able to pay for the biggest storms.

The effort by Rep. Alan Hays to remove the Office of Insurance Regulation’s ability to deny rate increases was the first sign of second thoughts about the January changes. But it amazed some members of the council, who said constituents would never approve of making a move that could make rates go up.

Hays, R-Umatilla, said private insurance company rates were, in his opinion, too low and kept artificially low by regulation. His proposal would have relied on the free market to govern rates.

“Really, it’s up to the customer to determine whether that rate is excessive or not,” Hays said. “If it is, they don’t have to buy the policy.”

The section of Hays’ bill that would have taken away the state’s ability to reject rate increases was removed by the committee. It then approved the bill, which now calls for a state study of the purpose of Citizens Property Insurance.

Topics Florida Carriers Legislation