Fort Myers News-Press
by Donald D. Brown
May 16, 2011
I was shocked to read Sen. Mike Fasano’s letter to Gov. Rick Scott asking him to veto SB408, the comprehensive property insurance package enacted in the 2011 regular session.
Despite the research and debate he devoted to the issue, Fasano does not seem to have a working knowledge of how the legislation will operate.
As a result, nearly every statement in his letter is inaccurate.
Actuaries, insurance professionals, and regulators deal with filings every day and their views are more instructive than the post-session scare tactics of those who did not win the legislative debate.
Here is what I have learned.
First, the bill does not contain an “onerous rate increase.” Nothing in this legislation diminishes regulatory authority to review any aspect of rates.
Only the timeline for such a review is affected. For Florida insurers, a significant component of their costs is the risk of loss from hurricanes — which is uniquely severe in Florida, particular in our coastal areas.
Frequently, the most cost-effective means to protect from these losses is through reinsurance, which is generally sold for annual periods commencing on a date (June 1) for most Florida insurers.
It is important that should such costs change, regulators quickly determine what degree of change will be allowed to be passed on in rates.
The bill simply provides that in lieu of the standard 90 days, the review should proceed in 45 days for this specific issue. The bill does not allow for unjustified increases, nor restrict regulatory authority to limit increases.
Second, no justified cost-based rate increase is “on top of” anything else. All cost components are reviewed separately in each rate filing.
If any one or more of these components are not fully justifiable as a basis for rates, it is rejected by regulators. This bill does not change that, and does not allow any new source for higher rates.
Third, nothing will “exponentially multiply.” Each insurer is required to file rates annually by law for a full review by regulators. If, and only if, cost levels exceed current rates, will an increase be allowed in any given year.
A one-time cost increase, for reinsurance or anything else, is never “embedded” in the base rate and allowed to compound over multiple years and filings.
Fourth, “profits for U.S. property and casualty insurers” are utterly irrelevant.
Florida property insurance filings must be, by law, based solely on Florida property insurance costs — no exceptions.
Insurers cannot raise rates in Florida due to tornadoes in Alabama or hurricanes in Texas.
Likewise, a good year writing workers’ compensation insurance in Kansas does not relieve an insurer of the obligation to file an actuarially sound rate for Florida property.
Fifth, insurers may not require homeowners to “pay for some repairs in advance.”
In fact, this practice is directly prohibited.
The legislation simply restores Florida law (for dwelling repairs only) to that similar to the other 49 states, where actual cash value is disbursed immediately and the difference between that value and replacement cost is disbursed when the insured arranges to make repairs.
The only insured hurt by this procedure would be the one who never intended on making repairs in the first place.
Finally, it is almost laughable to suggest that a five-year time limit for filing claims would somehow harm homeowners who did not detect damage.
It’s difficult to fathom what type of damage would not be detectable until five years after a storm or sinkhole began to affect the home.
Most other states have reasonable limits of two or three years, and as a result are not paying continuing taxes to fund a 2005 hurricane as we are for Hurricane Wilma.
After all his public service regarding insurance matters, it is embarrassing to see Fasano lose his expert credibility by displaying such a poor understanding of the property insurance package passed by his colleagues.
Donald D. Brown is a senior fellow at The Heartland Institute, whose mission is to discover, develop, and promote free-market solutions to social and economic problems.
