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Letter to the editor

Vanishing rate cuts spark ire

Crist, the Cabinet, an analyst and insurers clash over disparity.

By TOM ZUCCO, Times Staff Writer
Published September 20, 2007

One of the chief architects of a report that predicted Florida homeowners would see substantial savings on their property insurance bills - savings that haven't materialized - came to the Florida Cabinet on Wednesday to explain his analysis.

And to raise the issue of collusion again.

Bob Hunter, director of insurance for the Consumer Federation of America, had calculated in March that homeowners could save an average 24 percent on their premiums, based on special session legislation passed in January. That law directs insurance companies to buy more of their backup coverage, or reinsurance, from the state, rather than from the more expensive private market.

Not only are the actual savings closer to 12 percent, they do not include numbers from the state's biggest carriers. Insurers have until Sept. 30 to make their final rate filing, something State Farm, Allstate, Nationwide and more than 100 others have yet to do.

State Farm, for example, has estimated its savings at just 7 percent.

"We stuck our neck out to the tune of $28-billion," Florida Chief Financial Officer Alex Sink said of the increased state exposure. "Either something was flawed with the analysis, or insurance companies are not passing the savings on to consumers.

"What went wrong?'"

Gov. Charlie Crist quickly added, "And who did wrong?"

Hunter outlined several reasons why insurance companies weren't lowering their rates more than expected: some companies use affiliates that sell reinsurance essentially to themselves, some raised their profit margins and some used the savings on state reinsurance to buy more private reinsurance.

That last point, Hunter said, is where collusion could be a factor. Insurers pay close attention to rating services, which have warned that Florida's reinsurance fund is not as financially sound as the global reinsurance market.

That gives insurers the argument that in order to keep a high rating, they need private reinsurance. But insurance companies are the ratings agencies biggest clients, Hunter said.

As for profits, he said the industry lost money after Hurricane Andrew, but had record profits after the more costly Hurricane Katrina. "They made $150-billion over the last three years," he said. "That's $525 for every man, woman and child in America."

The insurance industry blasted back at the analysis, saying Hunter's 24 percent rate reduction applied only to the wind portion of a policy. And because wind makes up about half the total premium, 12 percent is a realistic number.

Crist has repeatedly cited the possibility of collusion in recent weeks and said he eagerly awaits public hearings that try to pull back the curtain on the industry.

"I don't think we can trust this industry," Crist said. "I think I've been pretty clear about that. I don't, and I don't think the people do either. And I think what's important is that we get to the bottom of this."

Staff writer Steve Bousquet contributed to this report.

Tom Zucco can be reached at zucco@sptimes.com or (727) 893-8247.

[Last modified September 19, 2007, 23:10:23]