Florida Homeowners

I’m listening to the GOP debate on MSNBC, currently in the candidates-ask-each-other-questions phase, and unsurprisingly Giuliani posed a question on the concept of a national cat pool to to Romney (with McCain jumping in as his name was taken in vain).  Giuliani  posed his question to Romney,

A few thoughts:

• We just had more discussion on the concept than most MSNBC viewers have likely ever have been exposed to previously.
    
• Romney expressed “familiarity” with the problem via Massachusetts snowbirds.  I’m sure that folks living on Cape Cod and the Islands are feelin’ the love.  (Of course, considering what they think of the relative lack of capacity in that corner of Massachusetts…maybe he doesn’t want to associate with them.)
   
• I’m a little disappointed that the discussion didn’t acknowledge the magnitude of the expense involved (although McCain, in his rebuttal, at least raised the concern about lack of funding of current proposals).
   
• At least Romney did make a key point (looking beyond the Florida primaries) — that he didn’t want folks in Iowa to subsidize Florida risk.
   
• Interesting transition to the question of global warming at the tail of the insurance question (using threat to beach property as a segue).  Probably not a question that Republicans like to hear…but a big hat-tip to McCain for his observation on his cap-and-trade plan — “if global warming isn’t real, we leave the world cleaner for our children” (paraphrase).

For folks who have been staying at least semi-aware of the property insurance circus in Florida, it doesn’t contain any particularly new information….but for folks who have been out of the loop, the Washington Post has run an article summarizing the Florida insurance debate to date:

Last year’s legislation saved insurers money because the state assumed billions more of the hurricane risk. But the savings that were supposed to be passed on to consumers have fallen far short of expectations. In fact, some major companies have proposed price increases.

Now with Crist and lawmakers evincing a sense of betrayal, a battle has erupted between the politicians and the industry over what went wrong—and what Florida should do next about the crush of insurance costs.

In recent weeks, Crist has hired three private lawyers to look into the possibility of a class-action lawsuit against insurers. State regulators subpoenaed records from insurance companies. Insurance Commissioner Kevin McCarty prohibited Allstate from writing new policies until it complies, though that order was suspended Friday by a court ruling. Meanwhile, Florida Senate leaders said they would call for testimony from the executives of leading insurers. [...]

The new prices, insurers say, reflect the daunting challenges of providing coverage in this hurricane-prone state after billion-dollar disasters such as Katrina, Rita and Wilma. Industry groups insist they never promised a big price cut after the legislation.

They blame politicians. The promised price cut, they suggest, was campaign rhetoric.

I wouldn’t be surprised to see the topic of Florida’s property insurance woes grow in national prominence over the next week, perhaps starting after Thursday night’s debate, with Giuliani trying to elevate it to “issue” status as he tries to salvage his Florida-first strategy.

I came across this article in this morning’s Wall Street Journal (subscriber link):

Regulators accused the company of failing to comply with a subpoena issued in October. In it, Florida Insurance Commissioner Kevin McCarty demanded documents detailing Allstate’s relationship to insurance trade groups, risk-modelers and ratings agencies as part of an inquiry into why insurance overhauls passed by the legislature last year, including the expansion of a taxpayer-backed state catastrophe fund, have failed to produce lower property-insurance rates for many homeowners.

Mr. McCarty said the company faces the risk of fines, suspension or revocation of its license to sell policies in the state — possibly including automobile insurance — if it fails to comply. In the event of a suspension or revocation, the company would be unable to sell new policies but would have to service existing ones. Allstate is the state’s fourth-largest insurer of homes, with about 241,000 policies in force, said Edward Domansky, a spokesman for the commissioner, who added that Allstate hasn’t been writing new homeowner policies in the state for a while. As Allstate also insures about 1.7 million automobiles in Florida, whatever action the regulator takes is likely to affect that business.

An announcement of action against Allstate is expected today, said Tom Zutell, a spokesman for Mr. McCarty.

The article mentions that Allstate says they tried to comply with the OIR’s demands, but simply needed more time.

I so need to get a transcript.

Seen in an Orlando Sentinel blog:

A short while after launching a hearing into Allstate’s insurance rates today, Florida Insurance Commissioner Kevin McCarty was so displeased with the company’s responses he abruptly called off the hearings.

“Allstate’s total lack of cooperation and responsiveness made it unproductive to continue the hearing,” McCarty said in a statement. “The bottom line is that it is not fair to Florida consumers that this company has not complied with our subpoenas and is not willing to explain to us their relationships with rating agencies, modeling companies and trade groups and how these relationships might have influenced the huge rate increases they have requested.”

I wonder if there’s a transcript someplace. I can imagine the hearing being either a situation where no truthful answer would be one that wouldn’t upset the Commissioner, and I can also imagine an insurer, feeling the “love”, would stonewall.

I suspect that reality is somewhere in between.

Seen in Insurance Journal:

Florida officials have subpoenaed Allstate Insurance and its subsidiaries to get the insurer to explain why it is not lowering homeowners insurance rates in the state and to defend its dealings with the industry’s risk modeling and rating organizations.[...]

“The legislation enacted in January was very specific about its requirement that insurers reduce the rates they are charging for homeowners insurance,” said [Florida Insurance Commissioner] McCarty. “We are continuing to investigate those companies that appear to be ignoring the intent of the legislature in its efforts to reduce premiums to consumers, and we want to hear the reasons behind those companies’ actions.”

It’s a shame that the interpretation of the law doesn’t apparently permit the possibility that rates may have been inadequate to begin with, that there is more involved in risk-loading rates on cat-prone business than simply looking at the availability of allegedly cheap reinsurance, and that consideration of the potential recoverability of future reinsurance claims might affect an insurer’s opinion on such cover.

Seen in Insurance Journal:

Sink is preparing legislation and will urge legislative leaders to implement the proposal during the upcoming special session. Additionally, Sink announced that she will present her proposal at the Florida Cabinet meeting on Oct. 16.

If approved by the Legislature before the end of the month, the reformed Cat Fund will begin evaluating financial and insurance market conditions and will recommend to the Governor and Cabinet the level and pricing of Cat Fund optional coverages for the 2008 Hurricane Season.

The article is light on meaty details, but surely any sort of financial thought with regard to the Florida cat fund beyond the legislature’s simply waving its magic legislative pen is a step in the right direction.

The IJ article includes a comment by the president of the Reinsurance Association of America worthy of note:

The private reinsurance market can do that without the huge post-hurricane assessment/taxes inherent in the current law.

Also seen in Insurance Journal:

Insurers faced a Monday deadline for filing proposed property insurance rates based on the new law, which increases access to cheaper backup insurance for the companies. Most insurance companies buy large amounts of reinsurance to insulate them against big hurricane losses.[...]

State insurance regulators haven’t compiled a complete list of all the filings, which have been trickling in over the summer but were due by Monday. But of the filings that have been released, more than 30 call for rate increases, rather than decreases.

Allstate Floridian Insurance Co., for example, is asking regulators for a 41.9 percent rate increase.

Allstate Floridian vice president George Grawe said the company did get cheaper backup coverage from the state’s catastrophe fund, but still had to purchase lots of very expensive private reinsurance. He also said the company’s customers weren’t paying enough before, and the back-to-back blasts of 2004 and 2005 made that clear. After those two years, the company didn’t have any capital left.

The article also references a +50% filed by USAA and a +30% from Florida Farm Bureau.

Of course, with the Governor getting national headlines for openly speculating that insurers will be foiled in their efforts to manage their aggregations and/or to seek profit corresponding to the level of risk they face, is it any wonder that Florida isn’t viewed as a particularly hospitable market for property insurance for reasons above and beyond the cat risks?

Seen at Insurance Journal:

Florida’s public school teachers are returning to their classrooms this month with one less protection from the state.

Since 2001, Florida has provided all public school educators with professional liability insurance. The legislature decided to discontinue the insurance program because of its high cost. This is the first year teachers will not have coverage.

Am I the only person who finds such a stance illogical, considering how underfunded the Florida legislature has been trying to cause hurricane insurance coverages to be?

Seen in the Palm Beach Post:

The State Farm Florida Insurance Co. announced Thursday it will non-renew 50,000 coastal customers as part of a plan to reduce its overall hurricane exposure in the state.

Officials with Florida’s second largest insurer said they also will cancel the wind coverage of other additional coastal Florida homeowners insurance customers but did not release numbers for the second group. Those customers live in designated Florida wind pools areas and have two homeowner policies, one for the wind risk, and another covering fire and theft. Areas east of Interstate 95 in Palm Beach, St. Lucie, and Broward counties are considered part of the wind pool.[...]

Under new State Farm underwriting guidelines, the company says it will non-renew policyholders within two miles of the Atlantic Ocean or the Gulf of Mexico. However, in some areas, policyholders up to five miles from the coast will not be renewed, said State Farm spokesman Chris Neal.

The Gotcha Covered blog at the Post thoughtfully observes that State Farm’s aggregation management actions comes about a month after Commissioner McCarty expressed optimism that the Florida property insurance market was stabilizing.

I can only imagine that someone in Bloomington took a look at the output of quarter-end cat model runs, experienced some indigestion, and decided to pull the trigger.

My goodness, Monday would have been a wonderful day to be a nattering nabob, if only I hadn’t been distracted with issues arising from real work.

Seen in the Miami Herald:

Who told us that we were going to see 20 percent rate reductions? It was the OIR [Office of Insurance Regulation], which hired Robert Hunter [insurance director for the Consumer Federation of America and former Texas Insurance Commissioner] for pretty big money to do an analysis of what we could anticipate.

My question is—and I’m going to bring this up to the [Florida] Cabinet—we heard 20 percent and we got 10 percent. What happened?

We took on an enormous amount of extra risk (in the CAT Fund) because we all agreed our policyholders were hurting, our economy was hurting and we needed rate relief.

We should always go back and find out whether it was a miscalculation, bad information or whether in fact the insurance companies aren’t doing what they were supposed to be doing.

But think about this: State Farm was out there from the get-go, saying “our rates could come down between 8 percent and 10 percent.”

Citizens wasn’t [directly] impacted by the CAT Fund changes, but it was out there saying “our rates might come down about 10 percent.”

So, between State Farm and Citizens, that’s 50 percent of the market.

How do you get 20 percent if 50 percent of the market is saying they are only going to [drop] rates about 10 percent?

That was Florida CFO Alex Sink, responding to a Herald interviewer’s question on why Florida Homeowners rates haven’t come down the 20% promised to regulators.

I shall now refrain from making snarky observations of how other regulators have (ahem) incented insurers to lower rates in product lines of political interest.