Sean M. Shaw Esq., Florida Insurance Consumer Advocate
Brad Ashwell, Florida Public Interest Research Group,
Democracy & Consumer Advocate
Bill Newton, Florida Consumer Action Network, Executive
Director
Date: January 22, 2010
This has been a tough year for property insurance consumers in the State of Florida. 2009 brought Floridians problems from harmful Chinese Drywall to the threatened exit of State Farm. Now, two of Florida’s legislators, Senator Mike Bennett and Representative Bill Proctor, have proposed a bill to deregulate residential property insurance rates. Their legislation, HB 447 and SB 876, would allow residential property insurers to set premium rates without the approval of the Office of Insurance Regulation. They call it “consumer choice”, but we believe it will provide anything but real choice for Florida’s consumers.
Senate Bill 876 and House Bill 447 claim to give consumers “greater choice” by allowing property insurance companies to charge unregulated rates to their residential customers. The architects of this legislation believe that these unregulated rates will attract more companies to the state, giving insurance consumers more selection. The proposed legislation also stipulates that no private insurer can be charged an assessment until of all Citizens’ policyholders have been charged a 15% assessment.
While these provisions are similar to the “consumer choice” bill introduced in the 2009 legislative session, unlike the previous bill, this legislation would allow all authorized property insurers in the state to charge any rate, not just a select few.
Citizen Overload
Imagine walking into your insurance agent’s office. Your agent places three policies in front of you. Two are policies with private insurers and one is a Citizens policy. The two private insurer’s policies are close in price, but the Citizens’ policy is significantly cheaper, for essentially the same coverage. Which would most consumers choose? The answer is obvious – the cheaper policy, especially in these tough economic times.
Senator Bennett has stated that he filed this bill in response the perception that Citizens’ legislatively set rates are driving private property insurers from Florida. Unfortunately, this bill does nothing to address Citizens’ rates, either through deregulation of Citizens or through any other mechanism. If this legislation is passed, these provisions would only further exacerbate the growth of Citizens. Allowing property insurers to charge unregulated rates would only serve to increase the divide between Citizens’ rates and what other companies can charge. If Senator Bennett and Representative Proctor are truly concerned about Citizens’ rates, it would make more sense for their legislation to directly address their concerns.
Instead, if passed, this legislation will actually increase the size and exposure of Citizens. Because Citizens is backed by all Florida’s taxpayers, many legislators have been looking to limit the state’s exposure by reducing the size of Citizens. However, if property insurance companies are allowed to raise rates to wherever they wish, Citizens is quite likely to see an increase in policyholders.
Finally, this proposal would allow all insurance companies to “cherry pick” their customers, leaving many Floridians with nowhere else to turn but Citizens. For example, South Floridians who live near the coast would likely see the largest increases in premiums, while Floridians who live more inland and northern counties would see more favorable rates. And when a hurricane hits, not only would Citizens have the majority of the losses, but their policyholders would also be required to pay that 15% assessment before any private insurance money was due.
Does Deregulation Work
Proponents of deregulation claim that deregulation will bring new insurers to the market. However, no insurer has said publicly that they would enter Florida if the property insurance market was deregulated.
Deregulation also strips out a huge layer of consumer protection for all Floridians. Because the average consumer does not have the resources or information to determine when a rate is excessive, the opportunity for the company to abuse consumers exists. However, the State of Florida has the time, knowledge, and resources to judge the fairness of rates contained in insurance policies. The state can provide a warranty of fairness to the insurance consumers of Florida. Under current regulations the state protects consumers against excessive insurance rates. Deregulation would eliminate this protection for our citizens, protection that is desperately needed in these tough economic times.
Another argument for deregulation is that it will end the subsidization of coastal properties by inland property owners. However, significant state revenues are generated from these coastal areas and flow inland. Any current subsidization helps the overall housing market in Florida, which many people believe to be instrumental to helping Florida’s economy rebound. The issue of coastal property insurance rate subsidies has been successfully addressed in other states, such as Mississippi, and the answer has never been deregulation.
Lastly, history has shown the problems deregulation can bring to Florida’s insurance marketplace. In, 1968, Florida politicians attempted to deregulate the auto insurance market based on many of the same arguments that are being submitted by Senator Bennett and Representative Proctor. However, after significant rate increases (some as high as 23%) the citizens of Florida clearly said that deregulation of auto insurance was not a good idea. The legislation was repealed and the auto insurance market has remained regulated since 1971. We should learn from our mistake with auto insurance and not deregulate the property insurance market.
Our View
The sponsors of this legislation mistakenly call this bill the “Consumer Choice” insurance bill. However, the only choice that consumers are given is between higher premiums (based on recent rate filing requests anywhere for 25% to 50%) or a move to Citizens’ property insurance.
As consumer advocates, it is our charge to look out for one thing – what is the best interest of our state’s consumers. Truly, we are always encouraged when any legislator or industry group proposes an idea that seeks to improve the insurance industry in Florida.
However, this bill does not accomplish any improvement – instead it would significantly hurt Florida’s consumers. Deregulation of our property insurance industry rates would allow insurance companies to abuse consumers through excessive rate increases and would hurt Florida financially by overburdening Citizens. We also do not see any hard evidence this bill can achieve its stated goal of attracting new companies to the state.
We call on members of the Florida Legislature to vote against the proposed deregulation bill. If this legislation should pass, we urge Governor Crist to again veto this type of proposal. We encourage the legislature to choose what’s in the best interest of the citizens of Florida.
The Insurance Consumer Advocate is appointed by Florida Chief Financial Officer Alex Sink and is committed to finding solutions to insurance issues facing Floridians, calling attention to questionable insurance practices, promoting a viable insurance market responsive to the needs of Florida’s diverse population and assuring that rates are fair and justified.