Florida musn’t kick the can on assignment of benefits reform
A wise man once said that you cannot have an economy based on real estate and tourism and ignore risk management and the cost of insurance. Florida is facing a potential group of events that could lead to additional double-digit increases in rates for homeowner’s insurance. If this happens, it weakens not only the real estate market but also the overall economy. The severe 2017 hurricane season combined with the still unresolved problem of assignment of benefits (AOB) abuses are increasing insurance rates. If as predicted, we have an active 2018 hurricane season — just four months away — we could find ourselves with homeowner’s insurance bills that have unacceptable increases. This rate explosion will threaten real estate closings because potential buyers can’t afford to pay for the required insurance to qualify for a mortgage. Even worse, seniors with fixed incomes may choose to drop coverage altogether. Current homeowners and renters alike will pay more to keep a roof over their head.
We can’t stop hurricanes, but we can promote laws that provide insurance consumers with lower insurance bills. First, the Florida Legislature must pass meaningful AOB reform. The Florida House of Representatives has already overwhelmingly passed a bill to fix the AOB problem. But Senate leaders aren’t convinced that the proposed bills being discussed are the answer. There is good reason for the Senate’s skepticism. The insurance lobby has made promises in the past they didn’t keep. It’s like the boy who cried wolf. But the reality is that this abuse is hurting consumers far more than insurance companies. Without action now, rates will continue to increase by double digits. It is time to put aside past sins and pass a bill. Letting yet another legislative session pass without action is simply not a viable or responsible option.
Second, the Legislature needs to repeal the surcharge insurance companies pay to the state’s reinsurance fund, a charge subsequently passed on to insurance consumers. That surcharge was levied when the fund had little cash. Now the fund has a record amount of assets totaling $18.7 billion. Repeal of this surcharge would lower rates to consumers by a net average of 4 percent.
But opponents of the surcharge’s repeal claim that we need every cent in the bank in case “the big one” hits. Let’s debunk that notion. We had a total of eight hurricanes in 2004-5, arguably the closest we’ve come to “the big one.” If there was a repeat of these eight storms today, the fund could easily pay homeowner’s claims and pay them twice! Even if the fund had little or no cash and a 1-in-250 year, Armageddon-like storm happens (one quarter of 1 percent probability annually that this occurs), this state government fund can sell bonds to pay claims. Insurance consumers would pay about 4 percent a year in assessments for 15 years to repay those bonds. In other words, those who oppose eliminating this surcharge want Florida insurance consumers to pay 4 percent more every year now and forever to avoid a 0.25 percent chance that they might have to pay 4 percent more for 15 years!
Who is opposing the elimination of the surcharge? It’s the large national insurance companies that sell commercial and auto insurance but have long ago abandoned Florida’s homeowner’s insurance market. One group even threatened lawmakers with a “double negative” bad mark on their annual report card if they voted for repealing the surcharge. Hopefully, our elected representatives will do what is good for insurance consumers, the real estate market, and the Florida economy and not worry about their “report card” from a single special interest group. The report card that they need to worry about is the one that voters will issue this November.
Jay Neal is president and CEO of the Florida Association for Insurance Reform.