Legislators play odds to reduce premiums

Published January 23, 2007

TALLAHASSEE - Taking a bipartisan gamble, the Florida Legislature promised on Monday to lower homeowners insurance premiums as long as no major hurricanes hit the state.

With a unanimous Senate vote and a 116-2 House vote, the Republican-led Legislature passed a complex insurance package that marks a philosophical shift for the party, because it calls for more government intervention. Lawmakers did it for a prize: an overall reduction in homeowners' premiums to the tune of 5 to 22 percent.

Gov. Charlie Crist said that he planned to sign the bill this week, based on what he knows about it so far.

"We are going to lower rates in a meaningful way, and it's going to actually happen," Crist said.

The bill paves the way for a major expansion of the state-run insurer, Citizens Property Insurance Corp., setting the stage for it to compete with private insurers.

The bulk of the rate cuts comes from doubling the capacity in the state's low-cost reinsurance fund and mandating that insurers pass on savings to consumers. Every Florida insurer will be able to buy below-market reinsurance (insurance for insurance companies) to cover damages between $6-billion and $34-billion and possibly as high as $38-billion.

But if Florida goes through a tough storm year, expected savings could be wiped out by assessments for deficits in Citizens' or the state's reinsurance fund.

Those assessments would be paid by homeowners and owners of other types of insured property, such as cars, motorcycles and boats.

"The only concern I really have about this is we're gambling. We're gambling," said the House insurance chairman, Rep. Ron Reagan, R-Bradenton. "That's what insurance is, it's a gamble. ... We're saying instead of actuarial sound rates, the state of Florida will guarantee we'll stand behind you."

In the Senate, the tone was more optimistic.

"If we're lucky and the storms don't hit for a few years, we can go home knowing that we have put into play a bill that will amass enough money for us to withstand normal storms internally," said Sen. Jim King R-Jacksonville, arguing in favor of the bill.

Monday's floor debate and vote capped an unusual weeklong session in a Legislature dominated by Republicans for a decade. Democrats in both chambers played key roles in drafting the bill, and angry residents from all parts of the state descended on the Capitol demanding rate relief.

In the Senate, lawmakers were so proud they played the first few bars of Kumbaya on the loudspeakers after they passed the bill.

But how much savings homeowners will see depends on where they live and what kind of coverage they have. Coastal residents who pay more in windstorm premiums than they do for their traditional policies will see more relief than inlanders.

"Will everyone be affected exactly the same? No," said Sen. Bill Posey, R-Rockledge, a chief Senate negotiator. "Will the voluntary market and the government market be affected differently? Yes."

Some lawmakers expressed frustration at not having more precise numbers to work with and worried that consumers may be disappointed with their savings.

"It's so convoluted that I'm not sure how we tell anybody in the state what's going on where," said Sen. Nancy Argenziano, R-Dunnellon. "How do we ever explain this to the public?"

The expected savings vary widely:

- State Farm customers could see about a 7 percent savings on their overall policies and 19 percent on their windstorm policies, according to legislative staff estimates.

- Other private insurance customers could see a 21.8 percent savings on their overall premiums and a 43 percent savings on their windstorm premiums.

- Citizens customers could see about 8 to 9 percent off their 2006 rates. That savings could get bumped to 18 to 19 percent, if the Cabinet, in cooperation with a joint legislative committee, allows Citizens to expand and write traditional homeowner policies to 350,000 customers who can buy only windstorm insurance.

The two "no" votes in the House came from Rep. Dennis Ross, R-Lakeland, and Rep. Don Brown, R-De Funiak Springs, two inland lawmakers who crafted much of last year's free-market approach to insurance.

"While I understand and appreciate the great political pressure to provide immediate rate relief, I cannot accept such short-term relief when it comes at an even greater, long-term risk to our homeowners and taxpayers," Ross said in a statement. Brown declined to comment.

Even Chief Financial Officer Alex Sink, who proposed that Citizens needs a business plan before it can expand and write broader policies, said she supported the final product. She added that she would have liked to see more relief for commercial insurance lines and hopes to get it in the regular legislative session.

"I think it's going to be very good for consumers," Sink said, citing the expansion of the state catastrophe fund and the mandated rate freezes and reductions in the bill. It also changes the balance of power, she said, noting that it has been in the hands of the insurance companies and the lobbyists.

In the end, lawmakers were not as tough on insurers as they had vowed to be. Key Crist campaign promises to ban Florida-only subsidiaries and to consider national company profits in requests for rate hikes died during weekend negotiations.

Mark Delegal, a State Farm insurance lobbyist, called the legislation both good and bad. He likes that the state agreed to take on billions more in risk by expanding the reinsurance fund, which could reduce premiums. But he fears the expansion of Citizens could have a "back-door" effect of forcing some private companies out.

"It's a death spiral," he said. "If Citizens continues to be cheaper, then more people will make reasonable, economic decisions to go into that. But when the wind blows, beware, because they haven't paid enough premiums to cover the claims. Do the two balance each other? We're in uncharted waters."