First, I must tell you that I am no expert in home owners insurance. I am merely a spectator of what will be a knock-down drag-out fight next week.
On one side, big insurance and big business. On the other, homeowners. The arena will be the House and Senate Chambers in Tallahassee. The particpants, legislators themselves, will be duking it out – both claiming to be working to improve the insurance climate here in Florida.
Let’s see how the posturing has started.
Associated Industries of Florida has formed a coalition to fight attacks on insurance companies. They claim that further regulation or mandated rate roll-backs will force companies out of the Florida market. They prefer providing grants to homeowners to “harden” their homes, allowing insurance companies to grade homes based on their ability to withstand windstorms, and allow insurance companies to provide policies with higher deductibles. (Orlando Sentinel Article)
The primary computer model used to justify rate increases is flawed based on faulty science. The model, used by more than 400 insurance companies, was previously based on 100 years worth of storm data. It was changed to use just five years of storm data. This change caused the projected losses to increase by 40% over the old model. Apparently, the change was requested at the behest of the insurance industry. (Tampa Tribune Article)
Governor Crist has proposed, and used this issue during his campaign, forcing insurance companies to make a choice: write homeowners policies or none at all. For example, if Widget insurance writes homeowners policies in other states, but only writes auto insurance in Florida, it would have to start writing homeowner insurance or give up the lucrative and highly profitable auto insurance. (Daytona Beach News Journal Article)
The Florida Senate has introduced its bill. The Palm Beach Post Blog (Q: The Florida Politics Blog) has a good summary of the bill. The bill is in draft form, I will link once it is available online. It’s key points (taken from a number of media reports):
• If insurance companies can prove they will reduce rates, they can get better access to reinsurance – first by reducing the threshhold from $6 billion to $3 billion, and by increasing the total amount they can purchase from $16 billion to $19 billion (for 2007 and 2008).
• Change Citizens by rolling back the 56% increase from this month and the projected 29% increase in March. It also spreads the assessment that covers Citizens’ losses to include medical malpractice and automobile insurance policies instead of just property insurance policies. Citizens might also be able to cover losses other than windstorm, to help spread risk by covering fire, or non-homestead properties in high-risk areas.
• Homeowners would have three additional options: first, higher deductibles; second, waiving coverage of their contents; third, waiving coverage entirely – as long as all policyholders (including mortgage company and lender) approve. Homeowners might also get credit for taking steps to fortify their homes, after a commission studies the issue.
• Bring the Panhandle counties under the statewide building code – stronger buildings reduces losses in a hurricane-prone part of the state.
• The bill does not mandate rate reductions, leaving it to insurance companies to determine how to set the rates.
I like the idea of giving homeowners more options, in part because you could see “supplemental” insurance policies appear. Imagine a policy like AFLAC offers, that could cover only the deductible portion or the contents — I could even see two policies costing less than one does now.
Perhaps the South Florida Sun Sentinel editorial says it best: “Thus begins what many expect will be a bruising special session.”