Should big insurers be required to cover homes along with autos?
Every so often, a beleaguered Florida consumer proposes a way to fix Florida’s property insurance availability problem: The Legislature should require big national insurance companies that bombard the state with auto insurance ads to also sell homeowners insurance.
After all, they ask, why should the big companies be allowed to cherry-pick the easier and most profitable motor vehicle risks while avoiding potentially costlier property risks?
Ed Huber, a Boynton Beach resident, wrote to the Palm Beach Post in 2013 that “any insurer that is a national/international company will not be allowed to do business in any state unless all of its coverages are available in that state ... To exclude some coverage because of higher risk could not happen.”
In 2007, such a law was enacted during a special legislative session on homeowner insurance convened by newly elected Gov, Charlie Crist. And the new law was apparently forgotten soon afterward, with little discussion or evident enforcement.
In his 2006 campaign for governor, Crist criticized big insurers for “cherry picking” auto policies while dropping homeowner policies after unusually active hurricane seasons in 2004 and 2005. Florida subsidiaries of Nationwide and Allstate announced they had stopped writing new property insurance business in Florida and were non-renewing tens of thousands of existing policies.
The crisis then resembled the one facing Florida now: skyrocketing rates, companies pulling out of the state, and more than 1 million stranded homeowners forced into state-run Citizens Property Insurance Corp.
Crist argued that the solution included a law banning “cherry picking” by large insurers that sell home, auto and other products.
“I know in my heart that companies who would write property insurance in other states but not Florida, yet benefit enormously from writing auto policies in our state, need to stop discriminating against Floridians,” Crist said after winning the election, according to a 2007 story in the Palm Beach Post.
Almost immediately after taking office, he convened a special legislative session to address insurance costs and availability.
Lawmakers passed measures expanding windstorm mitigation credits and stronger building codes, along with immediate 10% rate cuts for Citizens customers and a short-term freeze of Citizens rates. They also provided small insurers access to cheaper reinsurance though the Hurricane Catastrophe Fund, as long as they agreed to pass some savings along to customers.
Additionally, they passed a version of Crist’s cherry-picking ban, with a provision barring companies from selling auto insurance in Florida if they sell homeowner insurance in any other state but not in Florida. Insurers with affiliates that sell homeowner insurance in Florida were exempted.
But the Legislature declined to enact another Crist proposal that would have given the provision teeth: He wanted to prohibit large insurers from concentrating their business into spinoff companies — or affiliates — that were allowed to price their policies based solely on loss risks in Florida, and not their entire books of national business.
After Hurricane Andrew pulverized parts of southwest Miami-Dade County in 1992, the state allowed the large companies to spin off Florida-based subsidiaries in hopes of persuading the insurers not to leave the state entirely. State Farm created State Farm Florida Insurance Company. Allstate had Allstate Floridian (later Castle Key). Nationwide had Nationwide Insurance Co. of Florida.
Because of those Florida-only companies, the affiliate exception in Crist’s cherry-picking provision would have protected those large carriers from the possibility of losing their licenses to write auto insurance in Florida.
The provision contained no requirement that companies selling auto insurance write a minimum number of homeowner policies, said Mike Fasano, a former legislator from the Tampa Bay area who later tried unsuccessfully to strengthen the law to one that required insurers to sell everything in Florida that they sell elsewhere in the country.
The provision that was enacted “doesn’t say how many policies they have to write,” Fasano said. “It allowed them to say, ‘OK, we’re writing 10 policies in Hardee County. Therefore we’re writing both.’ It definitely was watered down. It should have said, ‘If you write 1,000 auto policies, then you should write 1,000 homeowner insurance policies’.”
Fasano lamented that the legislature “never came down on these insurance companies long ago, especially the big boys.” He sympathizes with consumers “who see the State Farms and the Allstates reporting billions in profits each year while their rates go up because their companies in Florida are crying poor mouth. You think, ‘What is the state doing for these consumers?’ ”
Most recently, the Legislature held another special insurance session and enacted a package of reforms that lawmakers hope will eventually reduce high claims costs, stabilize insurance rates and encourage national companies to offer more policies in the state. Time will tell whether the reforms will be enough to lure more insurers back to the Florida market.
Asked to comment on whether the “cherry picking” provision had any impact on Florida’s insurance market, Crist’s campaign issued a statement that sidestepped the question.
“Ron DeSantis is the worst property insurance governor in Florida history,” the statement said. “We are in the middle of a hurricane season and under Ron DeSantis, homeowners are getting dropped left and right. I am proud of the law I signed as governor in 2007 that stabilized the insurance market, held companies accountable, and lowered rates 10 percent.”
Some insurance industry insiders say it’s ludicrous to consider forcing companies to sell specific product lines in specific states.
“Forcing auto insurers to offer home insurance in Florida would most likely drive these companies out of the state,” said Mark Friedlander, director of communications for the Insurance Information Institute, a consumer-focused website funded by national insurance companies. “Also, we have some carriers that only write commercial lines coverages in Florida but personal lines in other states. Would you also force these companies to write home and auto as well? Another way to drive insurers out of the state.”
Stacey Giulianti, chief legal officer at Boca Raton-based Florida Peninsula Insurance Co., said companies cannot commingle funds from separate lines of insurance and cannot be expected to offer all types of insurance everywhere.
“Every line of insurance has to stand on its own in terms of solvency,” he said. “You can’t use money from your auto carrier to subsidize homeowners insurance rates or vice versa. That’s simply not permitted.