Florida Regulators Question Castle Key Rate Increases

By | August 14, 2012

Florida regulators are questioning the increases sought by two property insurers that could raise rates on some homeowners by more than 40 percent, even as they reduce their number of policies.

Castle Key Insurance Co., is seeking a statewide average 32.7 percent increase while its sister company Castle Key Indemnity Co., is requesting a 21.9 percent average increase. The two Allstate subsidiaries that only write business in Florida together insure more than 250,000 homes.

David Border, vice president and state manager of the insurers, said the increases are needed due to significant underwriting losses that have drained the insurers’ surplus.

According to documents filed with regulators, the two insurers combined have lost some $217 million between 2007 and 2011, which has reduced their surplus during the same time period by some $88 million from $206.6 million to $117.5 million.

“We’ve had a net decline over five years and that is highlighted by low storm action with no major events at that time,” said Border.

Regulators questioned several factors in the filing including agent commissions and the fact the insurers are not including any savings on sinkhole rates.

Office of Insurance Regulation Actuary Bob Lee note that the insurers are paying agents 12.6 percent in commissions for homeowners policies, which is higher than the 11.5 percent in commissions for auto policies. This, despite the fact that the insurers have stopped writing new homeowners policies, while seeking to write new auto policies.

Castle Key Actuary Shantelle Thomas said the insurers have not made a study to gage how much time it takes for agents to handle either policy. However, she noted that informing homeowners about the various ins and outs of their coverage and potential liability is challenging.

“We do know that Florida has a complex property market and agents need to help their policyholders navigate those complexities,” Thomas said.

Another major issue for regulators was the fact the insurers included no savings for the sinkhole reforms enacted by lawmakers last year.

Border said there were a number of factors including that the insurers are still negotiating with the Office of Insurance Regulation about changes in their policy forms. Then there is the fact that the insurers, like other companies, are still watching how policyholders will react to the changes.

Case in point, as the new 2-year statute of limitations on sinkhole claims that is designed to restrict claims to actual sinkhole damage is becoming better know, more claims are being reported sooner.

Border said that while there are some signs the reforms are going to have a positive impact, the savings are just not apparent.

“There is some stabilization, but the numbers have not improved yet,” Border said.

The Office of Insurance Consumer Advocate General Counsel Brian Deffenbaugh acknowledged that the insurers have seen a substantial downturn in their respective financial positions.

“From a 50,000-foot level, we recognize that some rate increase is needed,” he said.

Deffenbaugh, however, questioned whether individual policyholder rate increases should be capped at some level.

If approved as filed, Castle Key policyholders in the state’s Panhandle region could see increases averaging roughly 50 percent. Both insurers also call for more than 40 percent increases in Hillsborough, St Lucie, and Martin counties, along with nearly 30 percent increases in Palm Beach County.

Florida’s Consumer Advocate Robin Westcott said that the insurers are still canceling policies. Castle Key Indemnity has non-renewed more than 11,000 policies and Castle Key nearly 3,000.

Westcott said that with those cancellations, along with much higher rates, would continue to put more pressure on Citizens Property Insurance Corp.

“The revolving door to Citizens would still be open, notwithstanding any attempts to depopulate,” Westcott said.

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