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Insurance Doctrine Shifting Back Toward Market

Nearly three years ago, the overwhelmingly Republican Legislature did something that seemed to some a little un-Republican.

Lawmakers had been blistered for two years by complaints from constituents who saw their homeowners rates going through the roof following the 2004 hurricane season, which brought Charley, Ivan, Frances and Jeanne to Florida, and the 2005 season, the most active Atlantic season on record, which brought Dennis and the destructive Wilma to Florida and Katrina to the Gulf.

While wanting to be responsive to ever louder complaints, lawmakers were pushed particularly hard by the new governor back then, Charlie Crist, who made it a mission to lower property insurance rates after taking office in January, 2007.

It didn't take long.

In a special session that same month, legislators did what they may not have been able to do under the previous governor, Jeb Bush. They passed a bill to force insurance premiums lower, making extra state reinsurance available to get private companies to lower premiums and freezing the rates of state-backed Citizens Property Insurance, after cancelling a couple of already-approved rate increases. And then they held their breath.

With rates held artificially low, there was no guarantee – in fact it was unlikely – that if another major storm like Katrina, or even a Wilma-like storm hitting a major metro area head-on, would be covered with the money brought in by premiums. The state's Catastrophe Fund, and maybe every insurance customer in the state, and ultimately the taxpayers, would have to bail out the companies if the big one hit.

Lawmakers knew what they were doing.

“What we're doing is we're gambling,” Rep. Ron Reagan, R-Bradenton, said at the time. “We're doing that with all the people of the state of Florida. That's what insurance is – gambling.''

Like a careful poker player who is ahead in the game, and afraid of losing all the night's winnings, Florida lawmakers are now trying to start cashing in their chips. Some might say they bluffed and got away with it.

“We got lucky,” Rep. Bryan Nelson said earlier this month. “It worked out, only because we didn't have a storm. Had we had a storm, it would have been a disaster.”

After three years of trying to keep insurance rates lower than what companies wanted to charge – and lower than what the companies said were actuarially sound rates – and the freeze on rates for customers of Citizens Property Insurance, the pendulum is now shifting back the other way.

The Citizens rate freeze ends – albeit cautiously – on Friday.

A law passed earlier this year and signed by Crist – who had pushed for the freeze in his first month in office – allows Citizens rates to start going back up. For high-risk accounts, the rates will go up starting Jan. 1 by about 5 percent on average. Some lawmakers wanted to see them go higher, as much as 10 percent, which was the limit under the law passed this past spring.

Letting rates go higher should bring new companies into the market, said Gary Landry, vice president of the Florida Insurance Council.

“When you've got a program that is going to artificially keep rates lower than they should be, how are you going to attract capital?” asked Landry. “No one's going to be higher than what you're keeping subsidized.”

The passage of the legislation allowing an end to the Citizens rate freeze begins taking the state in a new direction – back toward the market-oriented approach of the early 2000s, before the crazy 2004-2005 hurricane seasons, and away from the populist approach of 2007 that kept rates low for consumers, but put those same consumers – and other Floridians – at risk of having to pay some other way for a big storm.

Allowing Citizens rates to glide back upward “was an acknowledgement that those decisions (in 2007) may not have been the best decisions,” Landry said.

Nelson , who in 2007 had just been elected when he was called into the special session, and voted for the legislation that tried to keep rates low, agrees that in hindsight, it may not have been the best idea – but was driven by a clamor for lower rates.

“Sometimes we base legislation on knee-jerk reactions,” Nelson, R-Apopka, said recently.

Another sign that lawmakers are shifting their thinking in the other direction came earlier this year when the House and Senate both passed legislation that would have allowed certain large companies to raise rates without approval from the Office of Insurance Regulation.

The market should provide customers an option to find cheaper insurance if their company wants to raise rates dramatically, the argument goes, and therefore no state limit on how much insurers can charge should be needed.

The bill went too far for Crist, who is now open a little to the idea that some higher rates may be needed, but not that much. He vetoed the bill.

Its backers have filed a similar bill again for the coming year, but are seeking to have it apply to all property insurance companies. Any company that wants to raise rates should be allowed to do it if customers are willing to pay, say the measure's sponsors.

Whether Crist will go along with the idea now remains unclear – neither he nor anyone in his office has been willing to say.

Lawmakers say that they're nervous about what might happen if the 2007 approach continues.

“Every day that we go by without (insurers) being financially sound we are continuing to gamble,” said Rep. Dennis Hays, R-Umatilla.

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