MORE REGULATION–How’s It Working Out So Far?

A skirmish between industry representative William Stander, Vice President of the Property and Casualty Insurers Association (PCI) and Robert Trigaux, Business Editor for the St. Pete Times, not only exposes a lack of knowledge about Florida’s property crisis, particularly from Trigaux and the media, but a lack of historical perspective that’s partly responsible for its super natural staying power.

Their exchange was sparked by a recent Quinnipiac poll showing 59% of voters want more regulation of property insurance, while only 29% say the state is already doing enough. Trigaux’s points, however, are testament that the media and perhaps some consumer advocates have forgotten history; in essence complaining about the system that they not only reported on, but likely applauded, when Charlie Crist rammed it down lawmakers throats. It is a system of strict regulation, micro-management and prior approval. It is a system that discards sound underwriting and exposure management, relying instead on accusation, government mandate and trial by media.

You remember the scenes: insurer CEO’s dragged in front of legislative committees; then called, but never charged as, liars; placed under oath and generally treated like public stepping stones. They were told to toe the Governor’s line or get out and when they slowly, reluctantly left Florida, our Governor said “good riddance” and slammed the door.

If the media and consumer groups were truly honest they’d admit they applauded those actions. They would say Crist’s 2007 reforms were needed and that the results (temporary lower premiums) was proof the industry had been cheating consumers for decades. The state run insurer, Citizens, had its rates forced down by about 30%; then they were frozen so that now they are 55% too low according to its’ own actuaries. Private rates were artificially forced down, too, with crude regulations like “presumed factor filings” and bogus money pots called TICL.

The plan worked as its architects intended. When the catch phrases and sound bites were wiped away the true purpose of HB-1A was both obvious and singular: to do what was necessary to reduce rates quickly and worry about the inevitable results later. Of course, at the time, “later” meant after the next election.

The 2006 elections are over. Later is “now”. It’s time to worry.

Underwriting losses are at an all time high. Surplus depletions are at an all time high. Weiss Ratings just reported that 29 of the top Florida writers might not survive the next hurricane season. Other than State Farm and Citizens the top 29 writers cover almost 90% of Florida’s home owners.

In the last three years there have been a record level of insolvencies. During the same three years, there have been record level of rate increases–more than 150 between January 1, 2009 and December 31, 2010 alone. Most for huge amounts. In fact, we’ve had more rate increases and insolvencies entering our sixth year without a hurricane than we had immediately following two years with eight hurricanes.

And guess who disagrees with the 59% Quinnipiac said want more regulation; the state’s head regulator, Commissioner McCarty. He supported both SB-2044 and SB-408; bills railed against by the media and consumer groups as being insurer friendly. In an interview (Property & Casualty 360) published just days ago, commenting on how many carriers will be in financial trouble McCarty said…

“It is hard to say…It depends on whether it’s one event—how severe it is. Or will it be a series of events? What is the company’s reinsurance [and] reinstatements…Some have high retentions…Their survival is questionable.”

Then, in what some allege to be an understatement, McCarty predicted three to five more insurers may encounter difficulty even if we don’t have a hurricane; something his OIR has been telling lawmakers since before Charlie Crist vetoed last year’s solution, SB-2044.

The average rate increase total for the last two years is over 30% with some companies getting much larger amounts and individual policyholders facing increases of 80% or more. And look at State Farm. Its’ policyholders were just hit with “triple” digit rate increases according to the Sun Sentinel with average increases in some areas of 64 % or more. A policyholder in Weston had his premium go up 280%. A policyholder in Plantation will pay 181% more and one in Coral Springs 166% more–all approved by OIR for a carrier that just last year was permitted to remove all of its premium discounts; other than mitigation.

Without a breath of wind in almost six years claims costs (not company expenses, MGA fee’s or CEO salaries, just claims) are rising at record levels. Based on regulatory data (NAIC and OIR), from 2007 to 2009 the non-hurricane average claim per Florida policy rose 65%. In 2010 it was up to 80% higher. In 2011, absent the reforms of SB-408; the ones that Trigaux, Sean Shaw, Paige St. John, Senator Mike Fasano and others are attacking, the average loss per policy would be up by more than 120% over the pre-Crist reform levels.

So…when I hear someone complain about the cost of insurance and then blame it on a lack of regulation of the insurance industry, I take pause. I remind them that the current system isn’t the one the industry wanted or called for, it’s the one Charlie Crist, consumer advocates and media pundits called for. It “IS” the system that features more regulation; the system the insurance industry said wouldn’t work.

Therefore, to the 59% in Quinnipiac’s poll who think the industry needs even more regulation, I’ve got to ask ….”how’s it working out so far?”

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