At a September meeting with the Florida Cabinet, Insurance Commissioner Kevin McCarty said what the insurance industry has been saying for some time — homeowners' insurers doing business in Florida are losing money. In his report, McCarty said that 102 companies writing policies in the state had underwriting losses in the first six months of the year, compared to 84 that reported gains. The dismal numbers were coming from old and new companies alike. Of the state's newest 21 insurers, 15 lost money.
"There are only two alternatives: Increasing rates, which is really just affecting the symptom, or looking back at the core problems and what can be done," McCarty told the Cabinet. "We clearly have to have companies that are writing homeowners' insurance in Florida that make money," he said. "Otherwise their appetite to continue to do business will go away."
Gov. Charlie Crist, who has made reducing homeowners' insurance rates a centerpiece of his administration, was coy about McCarty's statements. "We'll see," the governor said. "Hopefully most of them don't."
McCarty remarks to the Cabinet included a small olive branch to State Farm Florida. The state's largest private home insurer has been trying for months to leave, citing its inability to be profitable because McCarty will not approve requested rate increases. McCarty told the Cabinet that he is now negotiating with the carrier to remain in the state, perhaps as a slimmer version of its current self. "We would be better served if State Farm stayed to some degree," McCarty said, in marked contrast to Crist's oft-reported disparaging, "Floridians will be much better off without them."
In his remarks, McCarty said that Florida insurers have cited several factors affecting their profitability, including greater-than-expected premium reductions for mitigation discounts, rising fraud related to those discounts, and the cost of reinsurance.
While the cost of reinsurance is outside his or the Cabinet's control, the mitigation program surely is not. It was McCarty, after all, who, in December 2006, ordered the discounts doubled (effective March 1, 2007) to provide homeowners some relief from escalating rates. As Lynne McChristian wrote in her column in September's Florida Underwriter, "Twice-as-nice on the discounts was popular, yet impractical — a decision made without solid actuarial data to back it up."
McCarty told the Cabinet the discount program is under review, conceding that there are problems.
The industry has been singing that song for some time. In August, a white paper from the Florida Association of Insurance Agents (FAIA) charged that the program was riddled with fraud and inefficiencies.
The white paper was one of several recent examples of insurance associations amping up the voltage in discussions with regulators, lawmakers, and the public. FAIA has taken increasingly vocal and public stances on a variety of issues, including an early endorsement of CFO Alex Sink for governor. With former insurance commissioner Bill Gunter as its new chairman, the group is perfectly positioned to advance its public persona and energetic agenda. Gunter discusses FAIA's goals and vision in a Q&A with Contributing Editor Sharon Moorhead in this issue.
Another recently elected chairman, Bruce Bowers at the Florida Surplus Lines Association, also is ready to ramp up his organization's visibility. This issue's special report on the E&S market includes a conversation between Contributing Editor Tim Hoelle and Bowers in which he speaks to the importance of interacting more directly with those in Tallahassee.
This increased activism by two of Florida's largest insurance groups will make a powerful statement to regulators and legislators as their members' voices are heard more forcibly and more often.
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