"What we are seeing in Florida mirrors what is going on nationally, which is that property and casualty companies — many of them, not all of them — have a disturbing trend of decreased capital," McCarty said.

A recent analysis from McCarty's office showed that 102 out of 210 companies with a significant presence in the Florida market posted underwriting losses during the second quarter of 2009. Sixty companies reported a decline in policyholder surplus.

McCarty himself noted that insurers are grappling with increased reinsurance costs, premium reductions due to the implementation of mitigation discounts, fraud, sinkhole claims, and problems with replacement cost methodology.

During the past year, several companies, such as First Commercial Insurance Company, a South Florida based-commercial and workers' compensation insurer, and Ponte Vedra Beach-based property insurer American Keystone, were placed into receivership and liquidated.

It is not only the insurers who are struggling.

Jeff Grady, president of the Florida Association of Insurance Agents, said that as businesses have been forced to downsize due to the economic downturn, the resulting lower premium costs have meant lower commissions for insurance agents. Grady said that agencies reliant on commercial lines — especially those who insured contractors — have been forced to cut back through pay cuts and staffing reductions. "Insurance is not elastic," said Grady. "It, too, varies by demand, and demand has softened."

Change in Direction

But as 2009 headed to a close, another trend was emerging, bringing with it the prospect of rate hikes.

Back in July 2008 — before the financial markets collapsed — state regulators rejected a rate hike request from State Farm Florida, the state's largest private homeowner insurer. That denial prompted State Farm to announce in early 2009 that it was pulling out of the homeowners' market over the next two years. (That withdrawal plan has yet to get final approval.) Gov. Charlie Crist shrugged off the announcement at the time, saying he didn't really care.

State regulators, however, are now beginning to approve rate hikes, some even at rates higher than those suggested by the insurers themselves.

The Office of Insurance Regulation has approved 40 rate hike requests this year (as of November). Some were double-digit increases; dozens more are pending.

Citizens Property Insurance Corp. was also given the green-light to impose rate hikes as high as 10 percent for individual policyholders, although the statewide average is lower.

"I think underwriting losses are starting to show that suppressing rates and adding on phony mitigation credits are a failure," said Grady. "I think 2009 is the final act in this tragic drama that has played out during Crist's governorship and Commissioner McCarty's willingness to go along with that pandering. It's the beginning of the end of this silly little political rollercoaster."

Scaling Back the 2007 Reforms

One sign of a new direction came this past spring when Florida lawmakers enacted a host of property insurance changes. The actions, largely applauded by the insurance industry, began to scale back the measures approved during a 2007 special session. Most of the measurers were contained in the omnibus HB 1495, which dealt primarily with Citizens and the Florida Hurricane Catastrophe Fund (Cat Fund).

"HB 1495 was the most significant positive property bill in six years," said Sam Miller, executive vice president with the Florida Insurance Council. "There wasn't anything punitive in it. They weren't out to restrict or punish us. They began to right the ship."

The legislation — which Crist signed into law — ended a three-year moratorium on rates for the state-created Citizens and authorized hikes until its rates become actuarially sound. The increases, scheduled to begin in January 2010, are expected to generate more than $140 million for Citizens, which remains the largest residential property insurer in the state.

Additionally, HB 1495 called for the gradual phase out of the top layer of coverage now authorized by the Cat Fund. The state-created reinsurance fund will pare back $2 billion worth of coverage over a six-year period until the Temporary Increase in Coverage Limit layer is completely eliminated. This will have the twin effect of requiring carriers to turn to the private market for reinsurance as well as reducing the amount of potential exposure in the fund.

Another key element of the law: It gave insurers the right to make expedited rate filings based on the cost of purchasing reinsurance in lieu of purchasing it from the Cat Fund. Although some carriers are not happy at how regulators have carried out the law, Miller said the change could set the stage for even more significant reforms in the coming year.

This past year also saw lawmakers debate and pass a bill that would have allowed well-capitalized insurers to raise rates without review by state regulators. Crist wound up vetoing the legislation, but Miller called it "incredible" that the debate even took place.

What to Watch for in 2010

Both Miller and Grady say they now expect even more changes for property insurers in the coming year.

"I think 2010 is going to bring increases to the property market, period, end of story," said Grady.

Miller said there is likely to be legislation filed in the coming year that addresses wind mitigation credits and the use of public adjusters, as well as proposed changes in how replacement costs are paid by insurers, and the concept of flex ratings. Flex ratings would allow insurers to quickly receive rate hikes for such items as increased reinsurance as long as the overall increase did not exceed a certain percentage.

Agents have already raised serious questions about the use of wind mitigation credits and suggested that there may be fraud associated with the program. A commission is now looking at the issue and must submit a final report and recommended changes to the Legislature by February.

McCarty himself said changes to mitigation credits may be necessary to avoid more rate hikes. "We need to look at those cost drivers and listen to the industry," McCarty said. "There are really only two alternatives: The additional costs either are passed on through higher premiums or we address those cost drivers so premiums can stabilize."

Also in the Spotlight

Property insurance will not be the only insurance issue that receives a lot of attention in the coming year.

McCarty is promising that he will push again during the 2010 session for a measure banning auto insurers from utilizing credit scoring and occupations in determining rates. McCarty has called the practice "fundamentally wrong," but those in the auto insurance industry say that their actuarial studies have found a clear correlation between credit scoring and a propensity to file claims.

The coming year will also bring a drop in workers' compensation insurance rates. The rates will drop an average of 6.8 percent on January 1, marking the seventh year in a row that state regulators have signed off on rate decreases. Rates have now dropped more than 63 percent on average since 2003.

The drop is attributed to the sweeping reforms that state legislators adopted during a 2003 special session. Legislators had to step in during the 2009 session to keep intact some of those reforms. The Florida Supreme Court ruled in October 2008 that were conflicting provisions contained in the 2003 legislation regarding caps on attorney fees. This led to an order to raise rates on April 1.

That increase, however, was rescinded after Gov. Crist signed into law HB 903. That legislation strikes references that attorney fees must be "reasonable" and ensures attorneys will continue to be paid based on the sliding scale approved in 2003.

Health Reforms Could Dominate

The past year did not bring many changes in health insurance, but that could change dramatically in the next few months. In 2008, Florida lawmakers attempted to create new programs that would address the state's stubbornly high uninsured rate. But the two measures — including Crist's highly touted Cover Florida program — have not made much of a dent so far.

Cover Florida, which offers both a basic plan and a catastrophic plan that includes inpatient hospitalization, became available to Floridians last January. By this fall, only about 4,600 policies had been sold. Another program, Florida Health Choices, billed as a way to create an alternative marketplace where small employers could purchase coverage, has yet to ramp up.

During the 2009 session, state legislators adopted two bills aimed at health insurance, both of which drew opposition from some carriers, including Blue Cross and Blue Shield of Florida. One measure — SB 1122 — required insurance companies to make payments directly to any provider not under contract if the insured makes a written assignment of benefits. While some insurers already do this, Blue Cross contends this change could harm its established provider networks.

Legislators also passed a bill that requires insurers that sell Medicare-supplement policies to issue such policies to people who are under 65 and are eligible for Medicare due to a disability diagnosis or because they suffer from end-stage renal disease.

Those state-specific changes may pale in comparison to what could happen in 2010. If the federal government enacts sweeping health-care reform, it will likely require scores of changes at the state level.

"There will be an incredible task implementing the federal health-care bill," said Miller. "That may overshadow everything else."