Policy for insurers: Cut their costs, hope for rate cuts

Florida’s property insurance industry is so predictable.

Whenever the companies have a problem, they ask the Legislature to fix it. They claim that the fix will help consumers through lower rates. The Legislature obliges. Then the industry finds yet another excuse why rates can’t do down.

The latest example is “assignment of benefits.” A homeowner allows a contractor to negotiate with the insurer over a claim. Homeowners do this because they believe that a third party will have better luck getting full payment for the claim.

Florida being Florida, scammers abuse the system, often by hiring lawyers who force companies to overpay. As a result, the industry says, rates go up for all policyholders. A particular problem: claims for water damage.

After several failures, the industry this year got the Legislature to change the assignment of benefits system. Among other things to limit insurers’ costs, the legislation limits attorneys’ fees when third parties sue over a claim.

The executive director of the Florida Property & Casualty Association called the law “a true win for Florida consumers and our states.” Rate cuts to follow, right?

Um, no.

As the Sun Sentinel’s Ron Hurtibise reported last week, the industry has revived an old problem to justify rate increases for most homeowners. That problem is reinsurance, coverage that companies buy to protect themselves against major losses. Think of it as a bookie laying off bets.

States regulate insurers, but reinsurers operate globally and are unregulated. They make their own bets each year, on Pacific typhoons, earthquakes and tsunamis, floods — and Atlantic/Gulf of Mexico hurricanes. Reinsurers, Hurtibise reported, claimed that Hurricane Michael surprised them with its late-season ferocity in the Panhandle.

If reinsurers raise rates, insurers will raise them on policyholders. Any help from the assignment of benefits legislation won’t come soon — if it comes at all. The Legislature did not require companies to cut rates if the law saved them money.

Hurricane Andrew in 1992 tore up property insurance in Florida the way it tore up southern Miami-Dade County. Large, national companies, which had competed with low rates to gain market share, dropped hundreds of thousands of policies. Medium and small companies went bankrupt. It was a crisis.

The Legislature responded with broad legislation. One of the most notable reforms was creation of the Hurricane Catastrophe Fund. All policyholders pay into the fund, which provides companies cheaper, state-subsidized reinsurance.

With that legislation, in essence, regulators and legislators struck this deal with the industry: Consumers wouldn’t get big rate cuts after calm hurricane seasons, but they wouldn’t get big increases after bad seasons.

Then came the 2004-05 seasons, which culminated with Hurricane Wilma. Despite those post-Andrew reforms, another crisis hit the state. So Tallahassee passed another supposedly comprehensive bill. This one included subsidies to encourage creation of state-based insurers.

For nearly three decades, Florida has done almost all of what the insurance industry has asked. In addition to what I’ve mentioned, the state has ended requirements to cover mold and sinkhole damage, when the industry claimed ripoffs for those coverages. When an appeals court found that homeowner policies — not flood coverage — had to pay for wind-driven rain, Tallahassee passed a law overriding the ruling. Impact-resistant windows may not protect you from such damage.

Homeowners also can file for rate increases of less than 15 percent without a full hearing. A company could raise rates by nearly 30 percent over two years with comparatively little scrutiny from the Office of Insurance Regulation.

In 2010, the Sarasota Herald-Tribune revealed how insurers have worked the system for their benefit. The series won a Pulitzer Prize. Industry-friendly legislators did nothing.

Even industry critics acknowledge that Florida has insurance fraud problems. Rather than take action to stop the fraud, however, Tallahassee has taken action to help the industry. Under the assignment of benefits bill, for example, homeowners could lose leverage over carriers that try to underpay claims.

In Congress, one solution is national disaster insurance, like the federal program for coverage against acts of terrorism. In Florida, one solution is for the Legislature to demand at least a small favor for consumers each time Tallahassee does a favor for the insurance industry.

By Randy Schultz