“A” or “F”…Where Would You Put Your Money?

One hears a lot of talk about bringing “needed capital” to the sunshine state. Such talk usually includes broad agreement on why some carriers left in the first place and even what’s needed to bring some of them back.

There’s also agreement that Florida cannot internalize its huge coastal exposure while at the same time quenching the political thirst to keep premiums in check.

Record level insolvencies from years past are proof that rate suppression has consequences which, ironically, includes… future rate increases.

Example: last summer OIR approved more than two dozen homeowners rate hikes ranging from 6 to 34 percent.  More hikes were filed late in 2011 and another 20 have been approved affecting 1,502,842 existing policyholders in the first half of this year alone–to see who and how much, click here.

Isn’t this a sign that Florida is becoming a better place to deploy insurance capital? After all, the granting of rate increases should indicate a potential to earn a fair profit.

Unfortunately those whom Charlie Crist bid “good riddance” to continue to avoid Florida.

Why?

R Street Institute, a new national public policy research and educational group dedicated to the mantra: “Free markets–Real solutions”  has just released its 2012 rankings of the best and the worst states in America for insurance regulation. Its author, R.J. Lehman has startling credentials for such comparisons.

Previously a  director of the Heartland Institute’s Center on Finance, Insurance, and Real Estate Lehman also spent nearly a decade covering regulation and legislation affecting insurance for the A .M. Best Co. and SNL Financial. He’s a three-time award winner from the American Society of Business Publication Editors and was the youngest ever to receive first place recognition by the New Jersey Press Association.

There are three fundamental questions his 2012 Insurance Regulation Report Card attempts to answer for Florida, as compared to other potential venues for insurance capital:

1. How free are consumers to choose the insurance products they want?

2. How free are insurers to provide the insurance products consumers say they want?

3. How effectively is Florida discharging its duties to monitor insurer solvency, police fraud, and  foster competitive, private insurance markets?

Answers to these and other questions about Florida don’t paint the prettiest of portraits.

Florida was the only state in America to get an “F”–worse than Texas which got a “D”; worse than Massachusetts which also got a “D” and Hawaii which got a “D+”.

Of America’s well known capital repellents, Florida was the worst of the bunch.

Our numerical ranking was also dead last with a minus 32 points.  By comparison, Vermont got an A+ and was the best state in the nation with a positive 28 points.

Last year, when the same report was conducted by the Heartland Institute’s Center on Finance, Insurance, and Real Estate, Florida got another “F” and was, again, dead last in numeric point total.

Frankly, the granting of needed rate increases is helpful to solvency, but…hardly to attracting capital. Especially when the states last resort insurer needs at least a 50% hike but is capped at 10% a year even FOR NEW CUSTOMERS–the customers that entry carriers would like to insure.

Senator Garrett Richter(R) and Bryan Nelson(R) both understand the importance of getting a handle on Citizens and the threat it has become to Florida’s future.  Its competitive advantages and wide open underwriting firmly establish Citizens as the number one barrier to Florida’s march back from the brink.  Thankfully Senator Richter and Representative Nelson are willing to put their concerns in writing, in a paper which everyone should both read and spread far and wide.

Whether you think R Street’s conclusions truly reflect the realities of Florida’s market is for you to decide.  Quantifying factors like “Politicization” and “Regulatory Clarity” are, after all, inexact exercises.

On the other hand, maybe the question isn’t what you think about the R Street report but, what those with a couple hundred million dollars in un-deployed capital think about it.  After all…

…where would you put your money?

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