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Proving it can be done, Florida home insurer asks for 9.3 percent rate cut

Get the smelling salts: A Florida property insurer is asking for a 9.3 percent rate cut.
Consumer advocates are applauding but wondering why more insurers can’t do the same thing.

Security First Insurance Co. of Ormond Beach, which has about 180,000 customers including more than 5,300 in Palm Beach County, says lower reinsurance costs are a big reason why it is lowering rates for more than 100,000 homeowners policies. It’s effective Oct. 15 for new policies and Dec. 1 for renewals.
Reinsurance is back-up coverage insurers buy to help cover claims if catastrophes hit, and the company said it accounts for almost 40 percent of its cost of doing business.

“Major reductions in reinsurance costs and changes in Florida law have significantly reduced the cost of providing homeowners insurance coverage in Florida,” said Locke Burt, a former state senator who is chairman and president of Security First. “We value our customers and are glad to have the opportunity to pass our cost savings along to them as quickly as possible.”

Florida Insurance Consumer Advocate Robin Westcott praised the company for being “responsive and responsible” to policyholders.

She also wondered why, if reinsurance rates are dropping 15 percent or more, more than one or two insurers aren’t filing for lower rates.

“I believe this decrease in reinsurance cost is not a fluke and we may see further decreases next year,” Westcott said. “I wonder what the excuse will be then.”

She works in the office of Florida Chief Financial Officer Jeff Atwater, who wrote a letter last month to Insurance Commissioner Kevin McCarty asking why rates are not coming down.

In response, McCarty mentioned one insurer dropped its rates almost 8 percent. A spokeswoman said that was ASI Corp. of St. Petersburg. Affiliate ASI Preferred Insurance Corp. has about 7,100 customers in Palm Beach County.

“We hope that the decreases we have seen mark the beginning of an improving homeowners market in Florida,” Amy Bogner, spokeswoman for the state’s Office of Insurance Regulation, said Tuesday.

But rate cuts are still the exception rather than the rule.

State-run insurer Citizens, Florida’s biggest carrier, got a 6.3 percent increase for 2014. The largest insurer after Citizens, Universal Property and Casualty Insurance Co., saw a 14.1 percent hike approved in February. Regulators fined the company $1.3 million in May and found it shifted tens of millions of dollars to affiliated companies by paying them above-average fees, The Palm Beach Post reported.

Industry groups have argued some insurers are not spending less on reinsurance overall, but buying more protection for the same price, so their rates should not go down.

An insurer’s “annual expenditure for reinsurance may remain the same, yet it has made a business decision to purchase additional reinsurance to be financially prepared to handle the costs of natural disasters,” said Lynne McChristian, Florida representative for the Insurance Information Institute.

Then there are other factors that go into rates, such as “unprecedented fraud and increased claims from an emboldened public adjuster community,” said G. Donovan Brown, Florida counsel for the Property Casualty Insurers Association of America.

Yet Security First acknowledged its non-catastrophic losses have been falling. That refers to things like fire and water damage, problems short of major storms.

“This is exactly what every company should be doing right now,” said former state insurance consumer advocate Sean Shaw, an attorney for Merlin Law Group who represents policyholders.

Lower reinsurance costs should mean lower rates for consumers as a matter of simple math, but nothing is simple with insurance companies, he said.

“Security First seems to be one of the few companies putting policyholders first,” Shaw said. “Other companies, not so much.”

The Palm Beach Post reported in depth Sept. 8 that despite an industrywide drop in key expenses such as reinsurance, the state’s biggest private insurer Universal Property and Casualty Insurance Co. has been raising rates, not lowering them.