Insurers whittle proposed rate drops in Florida
Mar 19, 2007
TALLAHASSEE, Fla. – March 19, 2007 – For thousands of frustrated Floridians, the big homeowners insurance rate reductions promised by state lawmakers and Gov. Charlie Crist may never materialize, judging by the companies’ own filings.

The state’s homeowners insurers were required to file proposed reductions in premium rates by Thursday, according to the reform hammered out by lawmakers in a weeklong special session in January.

State Farm Florida Insurance Co., USAA, Liberty Mutual Fire Insurance Co. and First Floridian Auto and Home Insurance Co. on Thursday became the latest major insurers to propose rate decreases far less than the average 25 percent to 30 percent that state legislators and the governor led policyholders to believe were on the way.

State Farm, the state’s second-largest homeowners insurer, is offering policyholders an average cut of 7 percent statewide. USAA, the fifth-largest, has proposed a 3.1 percent reduction, the lowest among the state’s major insurers.

Liberty Mutual and First Floridian, the ninth- and 10th-largest, respectively, offered average cuts of 8.7 percent and 8.2 percent statewide.

Bob Lotane, a spokesman for the state Office of Insurance Regulation, said the filings would get a full review by insurance officials. If they don’t meet specifications set by regulators, he said, they will be rejected.

The less-than-expected decreases, which take effect starting June 1, are not likely to be greeted with much fanfare by shell-shocked homeowners who were looking forward to major relief following years of double-digit increases in insurance rates. It was essentially homeowners’ outcries from being squeezed by higher rates – especially after the 2004 and 2005 hurricane seasons – that finally forced lawmakers into a special session to deal with the issue.

Nowhere is the sting of higher insurance rates felt more than in Palm Beach County, where homeowners also have been hit with nonrenewal notices. But in Palm Beach County and the Treasure Coast, State Farm is proposing to reduce rates between 8 percent and 10.7 percent, slightly above the insurer’s statewide average.

County breakdowns were not available for other insurers late Thursday.

“I’m a little perplexed,” Sen. Bill Posey, R-Rockledge, chairman of the Senate Banking and Insurance Committee, said after hearing of the reduction plans filed by insurers Thursday.

Posey, a key player in the reform debate during the special session, said insurers had told lawmakers an average 25 percent rate reduction was realistic if the state expanded the Florida Hurricane Catastrophe Fund. The fund was more than doubled to offer insurers as much as $28 billion in coverage.

Posey said insurers paid an average of 49 cents for each dollar of reinsurance – insurance for insurers – in 2006-07, and the catastrophe fund has reduced costs to as little as 6 cents for each dollar of coverage. He said it would be up to state Insurance Commissioner Kevin McCarty to determine whether the insurers’ filings were accurate.

William Stander, a regional vice president for the Property Casualty Insurers Association of America, said lawmakers were warned that a “one size fits all” solution would not work because insurers had varying reinsurance needs.

Chris Neal, a spokesman for State Farm, said the company already was buying reinsurance at rates cheaper than the state reinsurance fund offers, so the company could not pass along major savings to policyholders.

Bob Hartwig, an economist with the Washington-based Insurance Information Institute, said smaller insurers will receive the most benefit from the expansion of the state catastrophe fund because they did not have the clout to get the best reinsurance rates.

Some insurers did offer substantial rate reductions Thursday. Gainesville-based Tower Hill Preferred, the 23rd-largest insurer, said it would cut rates by 22.4 percent statewide. Some smaller companies offered rate reductions in excess of 30 percent.

But for the bigger companies that control more than 60 percent of the market, the savings were smaller. Allstate Floridian announced a 14 percent rate decrease this week, and Nationwide offered a 4.6 percent decrease.

On March 1, McCarty said regulators concluded that rates should go down an average of 24 percent and required insurers to develop new rates by March 15.

No matter what happens with the rate reduction plans, it’s likely that some homeowners may end up with rate increases because of previous rate hikes already granted by regulators. State Farm started putting into effect a 52.9 percent rate hike in November, but policyholders learn their new rate only at renewal time. In parts of Palm Beach County, that rate increase exceeds 100 percent.

The biggest increase in the works, however, could be from Nationwide. The company is appealing regulators’ rejection last year of its proposed 73 percent rate hike to an arbitration panel, which has the power to grant the increase.

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