Coastal residents across the nation have a stake in Florida’s ferocious property insurance war, where regulators and the industry are going head to head over sky-high home premiums.
“Realize what’s at stake here,” Gov. Charlie Crist said. “I guarantee you, if we can take care of business here in Florida . . . we’ll change it across the country, and it’ll be a wildfire.”
That is exactly what has insurers worried.
As Florida demands lower rates and harasses those insurers that won’t comply with political rhetoric, investigative subpoenas and straight-on competition, the nation’s insurers are trying to find ways to quell the hostility.
“Florida’s always been a big part of what insurers are concerned about,” said Bob Hartwig, president of the industry’s Insurance Information Institute, a group that helps set industry strategy. “Basically, the general view is that Florida’s approach to handling catastrophic risk is not one viable in other states, and in the long run, it’s not viable in Florida.”
In the past year, Hartwig and his economists have carried their message to Congress and to legislatures in New York, Massachusetts, Connecticut, South Carolina, Maryland and Texas – attempting along the way to show the danger Florida has put itself in as it demands lower rates rather than curb coastal development.
“Nobody is aware that Florida’s plan is not actuarially sound,” Hartwig said.
The interventionist mood already has spread:
– New York, having slapped insurers for forcing residents to buy car insurance to keep their homes protected, wants to order insurers to set aside their record profits for future hurricanes.
– Massachusetts and New Jersey are contemplating similar proposals.
– Connecticut’s attorney general accused the nation’s largest reinsurance brokerage of price-fixing, rigging the market to run up profits by forcing insurers to run up rates.
In Florida, Republican Crist remains on the offensive – publicizing subpoenas to hammer the nation’s largest insurers, financial rating firms and the unregulated global underwriting market with allegations of conspiracy, collusion and greed.
His tactics have been called “jack-booted extortion” in an insurance executive’s recent newspaper letter and “a campaign to socialize Florida’s insurance market” in Wall Street Journal editorials that Florida’s Democratic Chief Financial Officer Alex Sink said were “planted” by the insurance industry.
For Mike Buser – told he is being dropped by Allstate after two decades of claim-free coverage and spending $14,000 to hurricane-proof his coastal Florida home – Crist’s push doesn’t go far enough.
“Maybe it’s time these insurance commissioners, from Mississippi, Louisiana, Alabama, Texas … all got together, and said, ‘If you want to do business in our states, here’s how you’re going to do it,’ ” said the Air Force retiree who lives in Melbourne, Fla. “I think they need to get tough.”
For the 13 years between Hurricane Andrew and the eight storms of the 2004-05 season, Florida did what most Gulf states are doing post-Katrina.
It made building codes tougher and set up a state-run coastal insurance pool to cover homes that private companies deemed too risky. It also allowed insurers to raise rates and let them cut coverage.
“Florida has given what the insurance industry has asked for,” Florida Insurance Commissioner Kevin McCarty said.
None of that stopped the explosive rate hikes and policy cancellations that pushed Florida’s insurance crisis to the forefront of the state’s 2006 elections. A month into office, Crist presided over a special session of the Legislature to begin Florida’s insurance makeover. The state and its consumers took on the possibility of paying $28 billion in potential hurricane losses in exchange for the promise of lower rates.
Small, Florida-only insurers have complied with the required rollbacks, offering premiums half of what their national competitors charge. But national insurers still seek to raise rates and cancel policies, saying they cannot survive otherwise.
“There are such large markets that individual companies are reluctant to walk away from that much premium,” said Bill McCartney, USAA’s senior vice president for regulatory policy and the former insurance commissioner of Nebraska. “(But) there is a tipping point. Florida is getting awfully close to it.”
Florida’s insurance commissioner calls that a bluff.
“Florida is such a huge market. . . . Florida, California, Texas, New York, they’re not going to walk away,” said Kevin McCarty. “I think some smaller states are more easily intimidated. There is genuine fear.”
The battle line has swept past Florida and the states affected by Katrina, encompassing the entire eastern seaboard.
Allstate, State Farm and Liberty Mutual all have announced rate hikes and withdrawals from northern shores that have not seen a hurricane in nearly 70 years.
“We have had a mass exodus of the voluntary market,” said Paula Aschettino, a Cape Cod artist whose own home premium has soared from $1,600 a year to $4,839.
“The industry itself is shifting the risk from insurers to the citizens to the state and to the national government. In my opinion, it allows the insurance industry to keep raking in the profit and minimizing their exposure to loss.”
