With the prospects for a controversial rate deregulation bill dimmed by Gov. Charlie Crist’s threat of a veto, the insurance industry is betting on a new wide-ranging insurance proposal to bring some reform to Florida’s property insurance market.
A key legislative committee yesterday advanced an omnibus insurance bill that gives property insurers more control over their claims payments for replacement value and over premium credits for storm mitigation. The bill also gives insurers a bit of pricing flexibility, allowing them to more quickly recover rising reinsurance and financing costs in rates, with any annual rate increase for these costs capped at 10 percent.
At the same time, the measure extends the law giving state regulators veto authority over rate hikes and promises consumers a new Web site for comparing homeowners insurers and prices.
The multi-section bill also raises minimum surplus requirements for new insurance companies and, in a victory for agents, it blocks the state regulator from trying to get insurers to trim agent commissions as a way to lower rates.
The Senate Banking and Insurance Committee passed the bill, SB 2044, by a 7 to 3 vote after debate. The measure was sponsored by Sen. Garrett Richter, R-Naples, and is supported by Senate leaders, as well as by insurers.
Meanwhile, the committee has not yet considered the more controversial bill (SB 876) filed by Sen. Mike Bennett, R-Bradenton (and in the House, HB 447, by Rep. Bill Proctor, R-St. Augustine) that would more fully deregulate property insurance rates. A similar but narrower Bennett-Proctor deregulation measure passed the Legislature last year only to be vetoed by Crist, who has signaled he would do it again if it comes before him.
It’s not clear if either the Senate or House will bother to take up the Benett-Proctor deregulation bill this session in light of Crist’s veto pronouncement.
“It is particularly unclear what the ultimate goal is on property insurance as they [House and Senate] appear to be on separate paths,” said William Stander, assistant vice president of the Property Casualty Insurers Association of America (PCI) and regional manager for Florida. He suggested the true direction lawmakers will take on property insurance might not be known until April 30, when the session ends.
Insurers would like lawmakers to agree on some property insurance reforms even if they do not pass full rate deregulation.
“We’re concerned with the need to make measurable progress,” said Stander, suggesting the main priorities for insurers are to gain some pricing flexibility and find ways to control claims costs, particularly those related to public adjusters. “This [SB 2044] takes some steps on those issues.”
What Insurers Like
The Richter bill does not go as far as Bennett and many in the insurance industry would like in terms of rate freedom for insurers. However, there are provisions in the Richter bill insurers like.
One allows insurers to hold back up to half of the payment on replacement cost claims until the insured shows proof of repairs or proof repairs will actually be done. Insurers are now required to pay the full replacement cost for damage upfront, only to later discover in many cases that the expected repairs were not made. “People will still be paid in full but the timing will be different so we can get some proof of contracts or repairs,” Stander said. He said these claims costs are “spiraling out of control,” in part due to the involvement of public adjusters, who benefit from the upfront payments.
Insurers also welcome that the Richter bill addresses the expedited review by the Office of Insurance Regulation (OIR) of rate increases to recover reinsurance costs. The Richter bill expands this law to include financing products used to replace reinsurance and inflation trend factors. These increases can be no more than 10 percent to policyholders. Overall insurance rate changes are still subject to standard review by the OIR but those relating to reinsurance and financing costs are entitled to a faster review.
Standers said this expedited review provision is important because reinsurance costs are “outpacing other costs” for many insurers.
Third, the bill promises changes to the state program that mandates premium credits for storm mitigation efforts. Now insurers are required to grant what Standers called “arbitrary” discounts to homeowners. Under this bill, insurers would also be allowed to surcharge homeowners that do not take any mitigation steps, thus offsetting some of the revenue lost to credits. “It helps balance the equation, ” said Stander.
The Richter bill would also require the Department of Financial Services to include only “valid” complaints in its annual report cards for consumers on insurance companies. Valid complaints are defined as those where the insurer is found to have violated the state insurance code. In the past, DFS has counted all calls and contacts regardless of whether they were valid complaints, according to Stander.
In other provisions, the Richter bill hikes the minimum surplus requirements for some insurers. The bill requires “new” residential property insurers licensed after July 1, 2010 to have a minimum surplus as to policyholders of $15 million. This is an increase of $10 million above the current surplus requirements for new residential property insurers. For homeowners insurers licensed before that date, the minimum surplus requirement will be $5 million until July 1, 2015, after which it goes up to be $15 million.
The bill also addresses rate regulation. Currently, before using new rates, property insurers must wait 90 days to see if OIR approves or disapproves them. This law allowing OIR to review rates before they are used was set to expire at the end of this year but the Richter bill extends it to Dec. 31, 2012.
The bill protects insurance agents’ commissions from being used as leverage by OIR in negotiating lower rates by insurers. The effect of this amendment forbids OIR from “directly or indirectly” prohibiting insurers from including the full amount of acquisition costs in a rate filing.
Insurance agents told lawmakers the language in the bill is needed because the OIR has pressured insurers to reduce agent commission percentages in private and public conversations during a rate hearing.
OIR officials told lawmakers the change is unnecessary and deny that they engage in such behavior during rate hearings. They object to removing the rating standard that allows the OIR to review expenses that are “unreasonably high.”
Also, the bill instructs OIR to consider creating a separate Web site that consolidates consumer information for price comparisons, filed complaints, financial strength, underwriting and receivership information, and other data useful to consumers. OIR has informed lawmakers the site would cost about $1 million to get off the ground and about $400,000 a year to staff after that.
Another provision in the bill calls for shortening the notice period for cancellation of policies by insurers facing financial trouble from 100 to 45 days.
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