Saint Petersblog
by Peter Schorsch
May 15, 2011
State Senator Garrett Richter is firing back at criticism from Senator Mike Fasano, writing the following op-ed:
I recently read Senator Mike Fasano’s op-ed attacking the property insurance reform bill, and I cannot simply watch from the sidelines as a 17-year career politician mischaracterizes and demonizes badly needed public policy reform. There were many false statements surrounding Senate Bill 408 recently published in Tampa and Sarasota-area publications, and I want to follow up by providing factual information regarding this legislation. Let me begin by addressing many of the points Senator Fasano misrepresented.
First, he stated that this bill “virtually guarantees a 15 percent premium reinsurance increase.” This is a false statement. Any company that proposes a rate increase must file for the increase with the state’s insurance regulator for a full review before it is approved or denied. The 15 percent reinsurance piece he refers to is a limit to what they are allowed to file for, not a predetermined percentage increase. Any rate request must be completely reviewed and approved by the Office of Insurance Regulation (OIR) before it is granted.
Additionally, reinsurance costs are just one segment of a company’s rate formula. For example, if a company was able to prove to OIR the justification for a 10 percent reinsurance increase, that increase would account for only a portion of the consumer’s rate. So, if reinsurance comprises 30 percent of an insurer’s premium and the reinsurance contract goes up by 10 percent, the rate increase would be three percent to the policyholder, not the increase Senator Fasano suggested. Senator Fasano’s statement that “these 15 percent reinsurance increases are on top of regular increases” is also false. Referring to the limit placed in the bill as a “backdoor tax and fee increase” is entirely incorrect and intentionally misleading.
He further proposed that because of this bill “homeowners will have to pay for some repairs in advance and hope to be reimbursed.” This is also a false statement. In fact, the bill specifically states that an insurer is prohibited from requiring the policyholder to advance payment to replace property. For dwelling repairs, the insurer is required to pay the full cash value of the loss up front, and pay the remaining amounts necessary to perform the repairs as the work is completed. This is a conventional process for performing home repairs since a homeowner would not pay a contractor the full contract amount up front anyway. This also insures that the property will be repaired rather than leaving it in disrepair and trashing the neighborhood.
The bill gives consumers two options. The first option, current law remains, policyholders could continue to pay a higher premium and receive full replacement cost value up front, regardless of whether the policyholder replaces the lost or damaged property. The second option, the consumer pays a lower premium, and in the event of a loss, the policyholder receives a check for the actual cash value for their contents up front, and after they begin to replace contents, they provide receipts to the company and are guaranteed to receive subsequent payments for the remaining amount of the full replacement costs. This second option is how the rest of the country handles replacing items after a loss. Neither option requires the policyholder to pay upfront. The bill lets the consumer have the choice of which option and corresponding rate they prefer, thus enabling the policyholder to receive a lower premium if they chose the second option.
Finally, when an insurance company provides hundreds of pages of documents in a rate-setting case, the CEO and Chief Actuary of the company certify the documents as accurate and “complete,” with a penalty of perjury. Typically, during the review process by OIR, additional information may be requested from a particular document or topic. When the company provides the additional information at OIR’s request, it does not mean the CEO committed perjury by the filing not being “complete.” SB 408 adds some sanity to the process and allows the company actuary who supplies the additional information to certify it on behalf of the company, for which the CEO and Chief Actuary of the company are still on the hook.
I believe my constituents sent me to Tallahassee to use my business background to take on tough issues. Florida is far from having a healthy property insurance market, but bills like SB 408 will help create a competitive market with solvent companies that are able to pay claims. We arrived at the current situation and need for reform due to career politicians looking for sound bites and poll numbers instead of trying to understand the complex issues necessary to make truly sound decisions about insurance reform. I expect Governor Scott to sign this good bill, which was passed with bi-partisan support in both the Senate and the House, into law so we can stop relying on crossed fingers every hurricane season.
