FL Lawmakers Open Investigation on H/O Rates

With a sharp attack on the industry by a heavyweight national consumer advocate, state lawmakers on Tuesday opened their own investigation into why homeowners' insurance rates haven't dropped to expected levels.  
 
One year after lawmakers acted to combat skyrocketing premiums, the Senate Select Committee on Property Insurance Accountability invited J. Robert Hunter, director of insurance for the Consumer Federation of America and former Texas insurance commissioner, to the Capitol to provide his perspective of the industry.  
 
His stance was revealed in response to a question by Rep. Don Gaetz, R-Niceville, who asked if Florida lawmakers had been lied to.  
 
"Yes," Hunter responded. "If I was in your boots, I think the insurance industry hasn't done for the people of Florida what they should have done, and what you required."  
 
In January 2007, lawmakers met in special session to provide relief amid the howls of homeowners who saw their insurance rates double, triple or rise even higher in the wake of the devastating 2004-05 storms.  
 
The Legislature put the state and, in turn, taxpayers on the hook for much more storm risk, allowing insurers to obtain backstop reinsurance for catastrophic storms at bargain-basement prices. But in return, insurers would be required to pass along savings to policyholders.  
 
Analysts concluded the Legislature's move, and several other tweaks of state law, would provide average rate relief of 24 percent upon renewals of Florida policies. The actual savings has been more modest, a statewide average of about 14 percent. Some companies, in fact, filed for huge rate increases.  
 
Why that has happened is also under investigation by the state Office of Insurance Regulation, which has subpoenaed several insurers for records related to how they set rates.  
 
Last week, state Insurance Commissioner Kevin McCarty yanked Allstate's licenses to do business in Florida, citing the company's failure to comply with the subpoena requests. An appeals court later lifted McCarty's ban, but he is expected to urge the court to reinstate his order today.  
 
On Tuesday, Hunter offered lawmakers several explanations for the disparity between actual rates and what was expected.  
 
He said some companies bought additional reinsurance in the private markets, which may not have been necessary, but would have resulted in higher premiums.  
 
Some raised profit margins. Some used storm models not authorized by the state that projected much more devastating storm scenarios than previously forecast.  
 
Representatives of the insurance industry were not at the hearing to defend themselves; executives are to appear before the panel next month.  
 
Members of the Senate panel asked Hunter whether the conduct of the insurers rose to the level of criminal behavior.  
 
"It will become clear, if you ask the right questions of company executives that these activities are very questionable and could be illegal, I guess," he responded. "I'm shy about saying that, because I'm not an attorney."  
 
Although insurance executives did not testify Tuesday, representatives of its trade groups held a news conference earlier in the day to refute Hunter's characterizations of the industry's health and to warn of the risk involved in the state's January 2007 strategy to increase its exposure in a catastrophic event.  
 
"What we want to try and convey today is that all the hearings in the world are not going to change the fact that Florida has a tremendous financial consequence staring it in the face," said William Stander, regional manager of the Property Casualty Insurers Association of America. &nbs