By Paige St. John, Sarasota Herald-Tribune
April 27, 2011
TALLAHASSEE - Florida property insurers that pocket profits while claiming paper losses by funneling money through affiliated companies would be required to open those related firms' books under a surprise legislative change Wednesday.
Sen. Rhonda Storms, R-Valrico, successfully added the requirement to the Senate's hefty property insurance bill, seeking to close a loophole that has kept insurance company-owned managing agencies' books sealed.
It is part of a massive bill that lifts the edict for insurers to sell sinkhole coverage and shrinks the time property owners have to file loss claims. The legislation moves into position for full Senate vote as early as today.
Other insurance bills that would dramatically raise rates, opening the door for premiums to triple in the next three years, are awaiting final public hearings in the Senate budget committee.
The tilt of the legislative insurance package is intentionally pro-business, drawn to make it easier for Florida insurers to profit, and to attract carriers to the hurricane-plagued state. So many property insurers have abandoned Florida that the state is now the largest insurer of homes and condominiums, a business that carries tremendous risk of hurricane losses.
"This property insurance reform is a priority to get Florida on a sound footing," said Sen. Garrett Richter, R-Naples and chief sponsor of the pro-industry bill.
Just how eager lawmakers are to draw in new insurers was evident Wednesday when Richter introduced his own surprise amendment allowing insurers broader freedom in canceling policies, admitting that it was written to help a single, unnamed insurance company.
Under a hail of criticism that writing laws for a single company is "bad public policy," Richter recanted his remarks and rebranded the amendment as beneficial to every insurer in the state.
Lawmakers from districts hardest hit by the state's insurance crisis are wary of the impact of a half-dozen industry-backed bills making their way toward a final vote as the Legislature moves toward a scheduled May 6 adjournment.
"They're using consumers as chum, feeding the sharks and hoping the blood will attract more sharks," complained Rep. Evan Jenne, a Fort Lauderdale Democrat who has failed in efforts to insert consumer protection provisions into House versions of the insurance bills. Among them was Jenne's own proposal to allow regulators to audit the books of insurance company affiliates.
Richter contends that the Office of Insurance Regulation already has the ability to track how much money insurance companies pay themselves through management firms and other businesses set up under the same roof.
The agency routinely scrutinizes the contracts insurers sign with their affiliated ventures, but an exemption in state law prevents regulators from actually auditing those' affiliates' books.
A Herald-Tribune investigation found that Florida insurers in 2008 moved $1.9 billion out of their heavily regulated insurance operations and into unregulated affiliates, paying themselves for management services, hurricane protection and claims handling.
Many of those carriers then claimed insurance losses and sought rate boosts, while the fees resulted in overhead costs to Florida policyholders well above the national average.
The practice continues. Miami-based Universal Property & Casualty in 2010 reported a $36 million insurance loss, while its parent company claimed a $40 million profit off the same business. The carrier sought and received permission to raise rates an average 15 percent, while the salaries of company executives were doubled.
"I hope it will stay in the bill," Terry Butler, the state's acting insurance consumer advocate, said about Storms' amendment. "We think there's a lack of transparency in the domestic property insurers in Florida."
Without the ability to examine the records of insurers' managing general agencies, Butler added, "you really don't have the ability to examine the insurance company. The laws to regulate insurers end up being meaningless."
Storms' victory was not resounding. The amendment passed 16-14, with 10 senators sitting out the vote, including local Sens. Mike Bennett, R-Bradenton, and Nancy Detert, R-Venice.
Sen. Lizbeth Benacquisto, whose district includes part of Charlotte County, voted to keep insurance affiliate books sealed, and Sen. Arthenia Joyner, who represents part of Manatee, voted to allow them to be audited.
The Citizens Property Insurance bill now pending in the Senate requires the state company to raise its rates as much as 25 percent a year. It opens the door for a potential 95 percent increase over three years, while forbidding the carrier from reducing premiums in areas it already admits are overcharged.
Another bill also pending allows private insurers to raise rates 15 percent a year to cover climbing reinsurance costs, with minimal review by regulators. In addition, it allows carriers to sell a deregulated policy for 30 percent more, meaning almost a 50 percent boost over any increase already approved by regulators.
An insurer taking full advantage of those provisions would, in three years' time, be able to raise its rates 234 percent above what regulators approved as necessary.
Rate increases are only part of the proposed "fix" to Florida's property insurance market.
The legislation also reduces what a Citizens policy covers — excluding screened porches and decks — and increasingly closes the carrier to owners of high-value property, starting with $1 million homes in 2012 and dropping to $500,000 by 2016.
Further, residents would be unable to buy policies for new or rebuilt homes seaward of the state's Coastal Control Line, property immediately adjacent to the shore.
Other bills already passed kill a public report card that grades insurers, and a public database that tracks sinkhole claims.
At the request of property insurers, lawmakers seek to shrink the time property owners have to file a claim to three years, and to allow property insurers to drop coverage for sinkhole damage, a common hazard in Florida.
A separate bill requires those policies to be sold by the state-run Citizens Property Insurance.
"Where are those homeowners going to get coverage? Citizens," said Sen. Mike Fasano, a Republican whose Pasco County district is saddled with hundreds of reported cases of cracked foundations and splitting walls as homes slip into the decaying ground.
Lawmakers have heard no estimates of how many homes would be pushed into Citizens, and what that influx would do to the carrier's hurricane exposure, the reason lawmakers most frequently give for requiring Citizens to dramatically raise rates and reduce what a policy will cover.
Opponents have softened the legislation, including removing a provision allowing insurers to refuse to pay claims in full until repairs are made. As now written, the bill allows insurers to sell such reduced-payment coverage as a separate policy, supposedly at a lower price.
"I wish these bills didn't exist, but we're getting small victories right now for the consumer and I'm pleased about that," said Fasano, who has steadfastly opposed most of the insurance bills this year.
"The insurance companies had these ideas of getting everything and anything passed that was going to make them a more profitable industry and hurt the consumer," Fasano said. "We're finding out here in the end when reality hits, that passing legislation and putting into statute some of those bills, would be very bad for consumers and I believe my colleagues have realized that."