Florida's insurance fix needs fixing
A Times EditorialPublished November 20, 2007
Gov. Charlie Crist often goes overboard with his populist attacks on insurance companies, but there are cold hard numbers behind his overheated rhetoric that don't add up. Allstate's request for large rate increases for homeowners insurance and the state's quick denial illustrate the fundamental problem: The state's reforms aren't working, and private insurers remain determined to minimize risk and maximize profits by charging premiums many Floridians can't afford.
Five months ago, two Allstate companies cut rates by more than 13 percent in response to the changes approved by Crist and the Legislature in January. That didn't match the 24 percent average cut projected by the state, which provided billions in additional cheap reinsurance to private insurers, but it was a start. Yet last week, Allstate companies were seeking rate increases ranging from an average of 27.4 percent to 43.4 percent. In Pinellas, the proposed average increase would have been 125 percent. On their face, those sorts of increases are untenable for many homeowners.
Allstate has dropped some 350,000 Florida policyholders in recent years, reducing its risk here as its parent company makes a healthy profit. But the parent company is unwilling to send more money to Florida subsidiaries if they suffer losses, and company officials said the rate increases the subsidiaries sought would have purchased more reinsurance and provided financial stability. They also would have provided a substantial profit on the backs of homeowners already struggling to pay their mortgages and property taxes.
The way Allstate justified this bleeding of their policyholders also needs more scrutiny. The company relied on secretive computer hurricane modeling that estimates possible storm damages. That model generates higher projected losses because it uses a far shorter time frame than other models. It has not been approved by the state, and Allstate officials refused at last week's hearing to discuss details about the model they used. If Florida homeowners are going to be asked to dig deeper to pay premiums, the reasons ought to be public.
Allstate could appeal the denial of its rate increases, which the state concluded did not pass along savings from the new law that increases risk to the state and its residents. But the episode provided more justification for the governor's earlier decision to subpoena documents from Allstate, State Farm and other insurers. The state needs a clearer picture of what these insurers are up to than routine rate filings provide.
Crist said last week if insurers haven't followed the new law that was supposed to provide significantly more relief than it has so far, "we'll sue them into the Stone Age." That reflects the frustration of many Florida homeowners, but the reality is more complicated than the sound bite. The lack of available, affordable property insurance for homeowners and businesses is arguably the biggest single drag on a state economy that has all of the earmarks of entering a recession. As long as Allstate and other large insurers are focused on reducing risk and increasing profit at Floridians' expense, government is going to have to find more creative ways to help residents protect their homes and businesses without facing financial ruin.