Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

In 2006, Charlie Crist ran on a promise to Floridians that he would fight against insurance premium rate hikes. Other Florida politicians promised the same thing. Many of those others seem to make an excuse for promising one thing and claiming to be on the consumers’ side, while later doing the exact opposite. Charlie Crist has vetoed proposed laws for two consecutive years that would have allowed for significant premium rate increases. He has kept his word, and others should applaud him for doing so. He is an example for the others who have bowed to the insurance industry lobby and propaganda.

Some will unfairly criticize Governor Crist for playing politics with this veto. This criticism is false, as he simply kept the promise he made to voters long ago, and he should be respected for this.

Thank you, Governor Crist for being a man of your word. You accomplished far more than anybody else by standing up to the very powerful and effective insurance industry lobby that has a grip on many in the Florida legislature and with some regulators.

The article does not surprise me and demonstrates that the insurance industry lobby is quite strong in Tallahassee. It noted in part:

A property insurance bill passed by the Florida Legislature this spring was scaled back and rewritten by industry lobbyists, new state e-mails show.

The bill, originally intended to crack down on companies that used a loophole in state law to pad profits, was largely rewritten by a lawyer working for the insurers -- at the behest of the state agency that regulates insurers, the e-mails show.

...

Records released last week show that in the final days of the session, the deputy commissioner in the Office of Insurance Regulation, Belinda Miller, asked industry insiders to draft language for the bill.

She approached several industry consultants, including Claude Mueller, an attorney and former state insurance regulator whose clients in the past year included property insurers who ran afoul of state solvency requirements. One of them, American Keystone, was ultimately shut down.

On April 5, the day before a Senate committee was scheduled to meet to consider the bill, Miller pressed the consultants to provide draft legislation. "Are you going to have language tonight?" she wrote in an e-mail to Mueller and a lobbyist at Meenan & Blank, a Tallahassee firm whose insurance clients include the Tower Hill group.
...

The draft bill that Mueller delivered three hours later contains much the same language lawmakers put into the bill, some of it verbatim.

The new language prevented regulators from seeing a company's actual financial books and instead allowed them to review only summary reports. Even those reports could be required only of companies in the worst financial shape.

The one key difference between Mueller's suggestion and what got written into the bill was what measure to use to determine financial weakness. (emphasis added)

While the article noted that Claude Mueller had ties to the Office of Insurance Regulation as a "former state insurance regulator," my impression was that much of the insurance industry's lobbying success came from another insurance regulator turned stellar insurance lobbyist, Timothy Meenan, whose law firm was cited in the article. His law firm biography sets out his significant experience with insurance regulators and his insurance clients:

...Mr. Meenan oversaw Florida's four billion-dollar State Treasury and three other divisions of the Florida Department of Insurance, including the Division of Risk Management. He also served for three years as the executive assistant to the Florida Insurance Commissioner, where he helped formulate and implement legislative and regulatory proposals for the Department.
...
Mr. Meenan's legal practice focuses on regulatory law before numerous state agencies, with an emphasis on insurance company and agent regulation. He has assisted insurers and other regulated entities to obtain licensure, has represented life and health insurers and health maintenance organizations with various regulatory problems, and has helped numerous property and casualty insurance companies resolve their disputes with the Florida Department of Financial Services, Office of Insurance Regulation.

If I owned an insurance company and wanted laws passed favoring the insurance industry, I would hire Tim Meenan as well. He is hardworking and an excellent attorney advocating on behalf of his clients. The problem is. there are a lot of attorneys in the full-time professional insurance lobby who are just as capable as Tim Meenan, but there are few representing the consumers, as I noted in Sean Shaw is a Refreshing and Intelligent Advocate for Floridians--We Deserve This Type of Representation.

My view is that Governor Crist should veto this bill, as expressed in Is the Proposed Property Insurance Bill Bad for the Average Florida Insurance Consumer? Still, reasonable minds could have a different opinion.

My hope for the future is that our legislators remember that, unlike insurers, consumers do not have a full time team of lobbyists. Insurance companies may have an extraordinary amount of financial and political power, but insurance companies are not voters. We should ask our legislators to remember that they swore to protect "we, the people" when confronted with the strategic and well thought out rhetoric from the insurance lobbyists -- before deciding what position they will take.

No matter what the fate of this year's insurance legislation, it has been a learning experience for me. I need to be a more effective advocate for insurance consumers in the future. I hate writing about insurance companies beating me at anything.

The editorial noted:

Two provisions, however, could spell trouble for Florida policyholders.

One opens the door to rolling back mitigation discounts that companies provided to homeowners, if they can make a convincing case that premium reductions were too high.

Another allows increases of no more than 10 percent under ``expedited review'' for certain fixed costs -- provided insurers forgo filings to increase base rates the same year.

At best, this makes the bill a 50-50 proposition for consumers. It offers a variety of provisions that protect policyholders, but it also creates loopholes that unscrupulous insurers could exploit, at the expense of consumers.

The best course for Gov. Crist is to veto this bill and insist that legislators give him a clean bill during the upcoming special session -- one he can sign without reservations.

The Miami Herald editorialists missed the part of the bill which reduces replacement cost benefits. A follow up story in the Miami Herald, Veto Watch in Place for Property Insurance Bill, made that point, quoting from Florida House of Representative Rick Kriseman:

He cites three main concerns in the language that give insurers the ability to:

• Withhold a full claims payment until homeowners repair structural damage, contrary to current replacement-cost-value policies;

• Increase rates each year up to 10 percent to cover reinsurance and inflation costs under a separate filing that gets ``expedited review;``

• And offer fewer mitigation discounts to policyholders who strengthen homes against storms and even charge fees to those with inferior protections.

But more than anything, Kriseman said, he disliked the way the Republican leadership in the Legislature strong-armed the bill, blocking all amendments and limiting debate.

``I think there is good reason to veto it,'' he said. ``Just the mere process alone, the way it was shoved down our throats.''

A leading condomium law firm, Becker & Poliakoff, did not miss problems with the property insurance bill when reporting to its legion of clients and readers in Industry Leaders Request Veto of SB 2044 Citing Ability for Insurer's to Withhold Partial Payment of Claims:

One part of the bill purportedly bars homeowners from filing claims. It says that the insured must provide notice of any claim (including supplemental or reopened claims) based on a windstorm or hurricane loss to the carrier within three (3) years of the date of the storm. While it doesn't change the applicable statute of limitations for civil actions, in some cases homeowners do not have a full understanding of all the damages caused by the windstorm/hurricane until after demolition and reconstruction begins. Thus, the three (3) year time frame may result in loss of insurance proceeds, depending upon whether the homeowner has the ability to attend to reconstruction after the storm.

Another section of the bill allows the insurance carrier to change the terms of the policy upon renewal by use of a notice entitled "Notice of Change in Policy Terms". Payment of the renewal premium constitutes acceptance of the new terms.

Most importantly, the bill removes the prompt payment requirements on the part of carriers. It only requires the carrier to pay "actual cash value" minus the deductible, regardless of whether the homeowner paid for replacement cost coverage. The carrier then only pays additional amounts once a contract for reconstruction is in place and the costs are incurred (as the work progresses). Critics argue that this provision disproportionately impacts lower income families that do not have funds available to pay for reconstruction (along with all the non-insured items) and/or replacement of personal property without insurance proceeds.

A comment by Mike Rump to that post hit the mark regarding the replacement cost benefit loss:

This new law should be veto'd. The legislature quickly forgets the number of complaints filed by consumers regarding the filing of holdback depreciation claims during our very recent and busy storm seasons. Consumers who pay for replacement cost did not understand why the carriers were allowed to hold back depreciation until proof of repairs were presented. Consumers saw this as another delay tactic by the carriers and it forced consumers to jump through more hoops after a disaster to completely recover the money they desperately needed for repairs. For this reason, the legislature passed a statute barring carriers from holding back depreciation on fire and hurricane claims only.

Well, now the issue is back on the table and this should come as no surprise. The current legislation will once again allow carriers to hold back depreciation on all first party claims. Property Insurance carriers stand to gain millions and Florida's consumers stand to gain additional paperwork and hassles in fully collecting what they are owed. Veto this Bill Governor.

This past weekend, I noted two important reasons why the law should be vetoed in Is the Proposed Property Insurance Bill Bad for the Average Florida Insurance Consumer? and Is the Property Insurance Bill Unconstitutional Because It Establishes Support for a Christian Organization and No Other Religious Based Organizations? In Senators Mike Fasano and Rhonda Storms Come to the Rescue of Policyholders and An Interesting Day in Tallahassee and Thoughts on the Pending Replacement Cost Coverage Legislation, I explained my frustrations that the current legislation takes away benefits from my future clients, and I gave credit to legislators who stood up to this poor insurance bill.

All this begs the simple question calling for the veto, Pay Higher Premiums and Get Less Coverage Legislation -- Can Anybody Explain Why This is Good for Floridians?

Julie Patel, of the Sun Sentinel covers the “insurance beat” and has a good understanding of the issues because of her experience reporting on insurance related issues. Her blog had a recent post, Bill Allowing Insurers to Raise Rates Likely to Get Vetoed by Crist. She noted:

Gov. Charlie Crist said he's leaning toward vetoing a property insurance bill that would, among other things, reduce costs for insurers and make it easier for them to raise rates.
…
"To their great credit, they're very effective advocates," Crist said of insurers. "They play on fear a lot and talk about, 'It's going to be a terrible day.'"

I agree. Indeed, I noted the effective control the insurance lobby has in Tallahassee over a year ago in Insurance Lobbyists are Winning the Consumer Protection Battle, and more recently in The Florida Insurance Lobby Currently Controls the Rhetoric Regarding Public Adjusting in Florida. Since much of what the insurance industry is paying for with these lobbyists are laws that harm their own consumers, even the pro-insurance industry press has questioned whether this is ethical-- as noted in The Ethics of Insurance Industry Lobbying is Raised in the Insurance Industry Press . In effect, the insurers are using premiums from their own customers to pay lobbyists to promote higher rates and fewer benefits for their customers. One aspect of the proposed legislation does exactly this. Now that the bill has hit the governor’s desk, everybody can bet that these savvy insurance lobbyists are trying every trick in the book to suggest that this bad legislation is helpful to consumers. The media propaganda has started in earnest with “Florida Insurers Say Omnibus Property Bill Is Consumer Friendly.” After spending all that money with the legislative process, those lobbyists will have their public relation types doing everything they can to make this bad bill look as good as possible.

Still, in Five Bills Gov. Crist Should Veto, the St. Petersburg Times editorial board noted:

Property insurance (SB 2044) This bill is a mixture of bad and good, the latter being that it would require insurers to have more capital. But it broadens the ability of insurers to get expedited review for rate increases of up to 10 percent to cover reinsurance and inflation costs. The window for these types of increases, which are routinely approved, is plenty wide enough now.

The legislation also unfairly tinkers with mitigation discounts. It penalizes both those homeowners who invested in storm shutters and other improvements and homeowners who did not — lessening the cost of mitigation discounts to insurers and allowing them to transfer some of the remaining costs to other homeowners.

Indeed, I was at the legislative hearing regarding the discounts, where Senator Mike Fasano seemed very upset that Florida, after promising insurance rate discounts and people spent money on mitigation measures in reliance on that promise, would retroactively break that promise.
 

There are more aspects of the long bill which I will write about. I did promise in yesterday's post about commenting about one aspect of it involving religion, and here it is:

Section 5. Paragraph (n) is added to subsection (2) of section 626.221, Florida Statutes, to read:

626.221 Examination requirement; exemptions.—

(2) However, no such examination shall be necessary in any of the following cases:

(n) An applicant for license as a customer representative with respect to property insurance who has earned the designation of Certified Insurance Representative (CIR) from the National Association of Christian Catastrophe Insurance  Adjusters.

While a Christian, I believe in separation of church and state. Nobody I know in the insurance adjusting community has ever opined that membership in this particular organization renders an adjuster more educated, experienced or qualified to do the job. The qualifications for membership in the Christian one, the National Association of Christian Catastrophe Insurance Adjusters, certainly do not meet the level of experience and knowledge required of a CPCU or AIC in adjusting.

I wonder what my Jewish adjuster friends think of it?

Judge Black has been serving the 13th circuit honor and humility for the past eight years,” said Governor Crist. “His extensive knowledge and experience will be invaluable to the people of the Second District. ”Black, 53, has served on the 13th Judicial Circuit since 2002.

Previously, he practiced privately as a sole practitioner and with Simmons and Dunlop from 2000 to 2002; with Black and Jung P.A. from 1993 to 2000; MacFarlane, Ferguson, Allison and Kelly from 1985 to 1993; and with McKenna Storer, Rowe, White and Farrug from 1983 to 1985. He earned a bachelor’s degree from Arizona State University and a law degree from the University of Illinois.

When he was a practicing attorney, I watched Judge Black successfully try a wind versus water insurance case against Butler Pappas. Just because he argued and won an insurance related case for a policyholder does not mean he is an expert in the field or will favorably rule for policyholders in the future. He has far too much integrity for that type of judicial activism.

While almost all of my cases are far outside of Florida today, I still get a chance to see Judge Black on a regular basis. Usually, my view of him is watching his back while running along Tampa’s Bayshore Boulevard because he is one of the Florida's best Master Class runners. He fits the profile of a person with fit mind and body. He is a quiet role model and Governor Crist correctly described him as "humble."

There are many other judges with similar backgrounds. We never hear about them because judges are taught to distance themselves to avoid perceived conflicts and bias. I feel that is somewhat unfortunate because it is far easier to criticize individuals we do not know than people we do. The Bar and Bench should do a better job of humanizing judges and explaining their most important role in our democracy.

One of the most difficult positions in a democracy is a judicial position. Good judges must make rulings and law that may be in direct conflict with popular sentiment of the day or which may upset politicians selecting them for higher judicial positions. The logic of justice and rule of law are not popularity contests. Jurists are often wrongly criticized by ignorant individuals seeking to gain popular approval. Many critics of judges often provide hypocritical views of traditional and fundamental American justice.

As a result, it is crucial to appoint those in our communities who possess character, honor, integrity and wisdom. Judge Black is an example of such a selection.

For my fellow property insurance coverage fans, I suggest checking out:

• Chinese Drywall Claims May Be Covered Under Homeowners Policy--Favorable Developments in Louisiana
• The Cooperation Clause: Adjusting the Loss With An Insured
• Post-Loss Market Earnings Ignored in Mississippi - Understanding Business Interruption Claims, Part 14

On Twitter (http://twitter.com/chip_merlin), I made a Tweet over the weekend about a developing insurance market and risk which some may find interesting:

Nanotubes and Nanotechnology? Those risks are insurable @http://tinyurl.com/ydj854l

The FloridaThinks.com had a good article which summed up where insurance politics stands at the half way point-- The Tally from Tallahassee, So Far:

The Senate Banking and Insurance Committee OK’d a bill last week that would allow homeowner insurance rates to rise by a statewide average of up to 33 percent over the next three years. Named the Consumer Choice bill (SB 876), the measure allows automatic average rate hikes of up to 5 percent the first year, 10 percent the second year and 15 percent the third year. Supporters, which include the Florida Chamber of Commerce and the insurance industry, say the bill will draw more insurers to the state and ensure companies have the reserves to pay claims in the event of hurricane losses. Opponents, including Gov. Charlie Crist and Insurance Commissioner Kevin McCarty, argue rates are already adequate and that higher premiums could force people from their homes. The governor vetoed a similar bill last year, but proponents hope they’ll have enough votes to override a veto this year.

I imagine most policyholders will eventually understand that this legislation should have been named the "Insurers Raise Rates as High as They Can" bill. That would be bad politics though, so it is understandable that a more palatable and populist name was given to protect those that promote this legislation.

In "More Homeowners' Insurance Headaches" The Orlando Sentinel called on Governor Charlie Crist to veto this legislation if it passes. Its reasoning is persuasive and may give legislators some questions to ask before they vote on final passage of it:

The reason comes straight from one of the insurance industry's top lobbyists, Mark Delegal, who represents State Farm. Mr. Delegal told a Senate committee Wednesday that, if left alone by regulators, the industry will be "the best protector of consumers."

That it will provide a "competitive marketplace where consumers get to decide what's the best price for them."

And that the government and public need to trust the industry because, after all, it would lose business "if we jump our rates up 50 percent."

But 47 percent, Mr. Delegal, that's palatable? That's the rate increase State Farm tried to impose on homeowners last year.

Until, that is, regulators found the increase actuarially unjustified. And rejected it.

Mr. Delegal's disingenuous comments are just the latest reason Mr. Crist mustn't defang his insurance-industry watchdogs. They need plenty of bite to protect the public from more of the same. Why can't the industry be trusted?

After State Farm didn't honor state rules requiring the company to tell customers about discounts for hardening their homes against storms, regulators last year made it pay policyholders more than $100 million in credits and refunds.

A year earlier, the courts backed regulators who'd kept Allstate from writing new policies because the company didn't fully divulge how it sets rates. Only after Allstate submitted documents regulators subpoenaed did the company get to solicit new business.

The property insurance issues in Florida are unique and not easy to solve. Anybody who has studied the issue has to agree with that. Our elected representatives and career insurance regulators have their work cut out trying to solve the problems of a state sticking out in the middle of Hurricane Alley. As I have said:

Most elected officials truly want to make the "world, country, state" a better place to live and work. They are not corrupt, but are truly well meaning people.

So, I feel it is important to speak up and indicate why certain laws will make things worse rather than better.

Those who say the "free market" should dictate the answer are living in a make believe state of economic bliss. Remember the spike in prices following the 2004 and 2005 storms? Remember the huge increases in rates requested by State Farm and Allstate within the past few years? What prevents an industry that is uniquely exempt from anti-trust regulations from simply raising rates in concert? The insurance industry has been regulated by the states since the mid 1940's in return for the anti-trust exemption. Now, some in Florida want to allow these companies to raise rates without making them subject to state anti-trust rate regulations. It makes little economic sense and consumers will pay through the nose-- even more than they are now. The Orlando Sentinel makes an excellent point, but it may come down to a veto if others do not point out that only the insurance industry is behind the logic of this legislation.

In a National Underwriter article, "Gov. Crist Says No To Proposed Insurance Deregulation Bill," Crist was on record as saying he does not support the current rate deregulation bill. Consumer groups agree with the Governor:

"The consumer groups reacted favorably to the news. Consumer Federation of America’s (CFA) director of insurance, Bob Hunter, said in a statement, “It is outrageous to claim that this bill falsely promises ‘consumer choice,’ when its purpose is to let insurance companies charge whatever high rate they want with no consumer protections in a market with virtually no competition. The bill is an insurance industry wolf wrapped in consumer-choice-like lamb clothing.”

Birny Birnbaum, executive director for the Center of Economic Justice (CEJ), told NU Online that the bill is similar to legislation that passed the legislature last year but was vetoed by Gov. Crist.

That bill would have allowed homeowners insurers to charge rates not approved by the OIR if they met certain surplus requirements.

Mr. Birnbaum called this year’s bill a “little more far-reaching,” as the capital level limits in last year’s bill do not apply.

“It’s unclear what you’re trying to accomplish with a deregulation bill,” Mr. Birnbaum said.

He noted that the Florida market has shown that it is not competitive, and so competition and market forces will not lead to favorable prices for consumers. Regulatory oversight, he stated, is the only thing protecting consumers from excessive rates."

Birny Birnbaum and Bob Hunter are just about the smartest people I know who are not employed by the insurance industry when it comes to understanding insurance rates. Florida legislators who want to do "the right thing" for Florida and their constituents should listen to them. Governor Crist and Senator Fasano have listened to these scholars and read what they have written about this proposed legislation and that is why their views make a lot more sense. Other legislators are adopting the insurance lobby’s attempts to "spin" this craziness into law and policy.

The work is written by two University of Pennsylvania Professors, Howard Kunreuther and Erwann Michel-Kerjan. My son, Chase, is a student at Penn and has been excited to find brilliant and internationally recognized educators that teach in understandable language with deeply reasoned analysis. This book is similar and does not require a rocket-scientist mind to understand the significant implications to our society from their findings.

This book highlights how we mitigate, insure against, and finance recovery from weather related natural disasters in the United States. The authors have collected an amazing amount of data which I found quite surprising. For instance, one would think that State Farm has been denied rate increases by the Florida Office of Insurance Regulation for quite some time, given the rhetoric of its lobbyists and agents as I indicated in State Farm's, Allstate's and Nationwide's Concerted Agenda To Stop Competition And Insure Profits and State Farm's Freakoutnomics. This work noted the rate history of State Farm Florida Insurance Company from 1997 through 2006:

Every time State Farm asked for a rate increase during that time frame, one was eventually obtained, usually for what was requested. Certainly, State Farm and other major insurers changed their perceptions about the adequacy of their rates and exposure to weather risks as a result of the four 2004 hurricanes, followed by Hurricane Wilma in 2005. Still, it was not as if Florida regulators were not approving most of what State Farm demanded until July 2008, when State Farm asked for another 47% rate increase, followed by a demand for a 67% increase in December 2008.

When State Farm announced it would leave the Florida homeowner's market following the insurance commissioner’s denial of those rate requests, State Farm lobbyists and agents started the "free choice" concept where no insurance rate regulation would apply, and this was adopted by many in the Florida Legislature. This unique concept of insurance deregulation is not practiced anywhere in the United States except Wyoming.

Assuming State Farm and the State of Florida do not come to some agreement, this issue will still be a raging political debate in Florida next spring. If enacted into law, it represents a complete turnaround in Florida public policy from 2006. Then, Florida’s Legislature attempted to keep insurance rates low. Today, many legislative leaders sadly want to pass legislation allowing some insurers to charge whatever they can obtain--even if gouging-- in a market where demand clearly exceeds private supply.

In yesterday's afternoon post, Associated Industries and Private Insurers Want Florida Policyholders to Pay as Much as Possible for Property Insurance, I noted the rhetoric by insurance lobbyists calling for higher rates is starting already, now that the next legislative session is only six months away. Could you imagine the outcry if those same lobbyists and politicians influenced by them told the truth to the electorate about what consumers could expect if insurers could price gouge on premiums after a year where hurricanes hit, similar to what was going on in 2006?

Many Florida legislators do not want honesty and transparency about their change of public policy explained to their electorate. They do not want to warn of that practical result of the proposed law if they have already made promises to support the insurance industry in return for other political favors. Most politicians and informed electorate know why the insurance industry has to "spin" their side of reality rather than explain the honest truth about the issues involved—they want to keep insurance industry voting legislators in office to voting against the consumer’s interest.

My point is that complex issues of a serious nature deserve significant study and reflection from academic works such as this rather than bought and paid for policy --which is my impression of what is happening in Tallahassee when it comes to insurance legislation. Some of our well meaning legislators, to curry favor and gain influence under the current system, appease certain powerful leaders in the legislature. To help promote their own agenda, many of our legislators vote against the interests of their electorate and for the interests of those political leaders.

This current legislative system is not illegal or immoral--it is Florida democracy in action. And, it has nothing to do with making policy and law based upon the soundness of reason.

The remaining peril and risk issues facing those of us living in coastal areas are very difficult. The answers demand tough decisions with straightforward discussion of the long term implications if we fail to make law and regulations which mitigate the impact of disaster. Those needed mitigation costs have to be incurred at some time. The current insurance market mechanisms are simply not working in coastal areas because the markets are fragile and the supply is limited. There is nothing close to a free insurance market along the coastal areas of the United States because of very many unique aspects of the modern insurance system as explained in this work.

The authors’ conclusion as to the long term answer is not much different than mine. I hope that we can find leaders with enough character to explain and make policy that will start demanding mitigation efforts for those of us living and working along the coastal areas of the United States:

We typically think of a war as combat against a particular enemy. However, for most global risks, the battlefield and the warriors are not clearly defined. Natural hazards have always been part of our environment. But we often choose to ignore these hazards, or believe we are immune from them. In fact, one of the main reasons why the war against the weather has escalated is the desire of many people to reside in high-risk areas. The economic development of Florida highlights this point: the population of the state by 2010 will have grown by 600 percent since 1950. Most of this development has taken place in coastal areas subject to hurricane risk because property owners enjoy the sun and shore and disregard the dangers they face from an extreme event. As Peter Bernstein wrote in his seminal book Against the Gods, we believe that “Lady Luck will interpose herself between us and the fates (or the odds) to bring victory to our side” (pp. 11-12).

The paradox in waging a war against the weather and other extreme events is that we might very well be our own worst enemy. As individuals, we may decide to build in risky areas. As entrepreneurs in the private sector, we may decide to locate our businesses in these hazard-prone regions. As decision makers in the public sector, we may permit millions of people to reside and businesses to operate in these areas without requiring them to adopt appropriate risk reduction measures. In refusing to take steps in a proactive manner to reduce our vulnerabilities, the sees for future disasters are created that will affect our future well-being and social welfare. The same can certainly be said of the many extreme events that have unfolded in the past few years. Fortune cannot aid those who do nothing.

The story, however, may not yet be over, as the Tallahassee Democrat reported the sponsor of the bill may seek a legislative override of the veto.

In signing the veto, Governor Crist stated the bill would "likely result in significant and unpredictable rate increases that, during these difficult economic times, people can simply not afford."

You can read the governor's veto letter by clicking here.

An Insurance Journal article which discussed the letter noted:

"Florida's biggest private insurer of property, State Farm Florida, has told Gov. Charlie Crist it would "be willing to re-examine its options" and its decision to leave the state's home insurance market if he signs a bill on his desk designed to deregulate rates for large insurance companies.

Jim Thompson, president, State Farm Florida, in a letter to Crist dated June 16, stressed that any change in his company's current plan to leave the state would have to happen quickly due to the insurer's compromised financial state. Ratings analysts at A.M.Best last week downgraded the insurer."

This is obvious to me. Why else would State Farm have lobbied for the bill?

The only question remaining is whether Crist will sign the bill into law or veto it.

"[A] bill awaiting Governor Charlie Crist's signature would allow for cancellation of private sinkhole coverage in Pasco and Hernando Counties -- including hers. Under Senate Bill 742, private insurers could "non-renew" sinkhole policies beginning next year. In the same notice, insurers would offer sinkhole coverage as an add-on at a higher rate and require an inspection at the owner's expense.

"It's not a good idea, especially in Pasco and Hernando since it's a very sinkhole prone area," said Bill Newton of the Florida Consumer Action Network. Newton fears insurers will raise rate so high that many homeowners will balk at the premium and inspection, choosing to go without sinkhole coverage.

"And sinkholes happen," Newton said.

New Port Richey Senate [sic] Mike Fasano, who helped write the bill, said it is modeled after a pilot program being tested by government-run Citizens Property Insurance and is intended to benefit homeowners.

"It's worked very well," Fasano said, noting that Citizens' overall property insurance premiums decline 45 to 50 percent when sinkhole coverage is dropped.

Fasano said sinkhole coverage is often just "bells and whistles" and that catastrophic collapses, such as those that swallow homes, are covered under homeowner's policies even if there is no specific sinkhole coverage.

"If you want to have the cracks in your driveway, cracks in your drywall type coverage, that's what we call the bells and whistles. And you're going to have to pay extra for that," he said.

Florida Insurance Council Spokesman Sam Miller said on Wednesday afternoon that he was unable to immediately say whether insurers expect the bill to reduce their overall risk in Florida, which is often been described by the industry as a losing venture."

The bill arrived at Governor Crist's desk and he now has until June 18 to act on the bill. If he does not veto the bill, it will become effective on January 1, 2010.

A news article,Insurance Department in Limbo as Texas Legislature Adjourns, correctly notes that the Legislature did not get its entire job done. The Department of Insurance and Office of Insurance Council will no longer exist on September 1, 2009, unless a special session is held to prevent the laws that created these entities from expiring. Of course, with talk from Governor Perry about the status of Texas in the Union, anything is possible in Texas.

Florida Governor Charlie Crist was finally provided the proposed Surplus Lines Bill--a month after the legislation was passed. He now has until June 16th to sign or veto the bill. He can also allow it to become law by doing nothing.

In an earlier Post, I explained why this bill is flawed. It will hurt the carriers admitted in Florida. It is overbroad and will have unintended consequences for consumers, surplus lines carriers, and the admitted carriers. I predict that even if signed by Governor Crist, the Legislature will have to revisit the bill next year. I also predict the surplus lines carriers and the small admitted carriers will be the first to call on the Legislature to do so.

I suggest that those interested in the insurance market note how many large personal lines carriers currently do business through wholly owned surplus lines subsidiaries. The large carriers are escaping regulations, in part, by simply doing business in surplus entities. What a great strategic position for the large carriers. They can decide not to sell policies in certain areas of Florida where they think they can get higher premiums if they sell through a surplus line subsidiary and with unregulated forms which will probably offer much less coverage.

Our newly admitted carriers had assistance from the State. Now, one year later, the same legislature passed a surplus lines law which favors the large carriers and allows surplus lines carriers to unfairly compete with the newly admitted carriers. If public policy favors the smaller admitted carriers, why has the current legislation been passed?

Governor Crist has two remaining insurance bills before him. He should veto both.

New York is losing a very fine insurance regulator. Eric Dinallo is resigning. Earlier this week, I posted a video clip which shows how eloquently he has stood up against the Federal Charter proposal in New York Insurance Superintendent Says Creating an Optional Federal Insurance Regulator Will Erode Consumer Protections. Sam Friedman, an editor of the National Underwriter, mentioned that Dinallo is a respected insurance commissioner and will be missed:

"In case you forgot all that Mr. Dinallo accomplished during his relatively brief time in office, check out his record:

–He was a key player at the table, along with then-Gov. Spitzer, in convincing seven carriers to end six years of acrimonious litigation and pay some $2 billion to settle all remaining claims from the World Trade Center’s developer.

–He helped formulate and push through a long overdue workers’ comp reform measure that was hailed by insurers and employers alike–no surprise, being that Mr. Dinallo was able to authorize a 20.5 percent rate cut, despite raising injured worker benefits for the first time in over a decade.

–He also was very influential in leading the way towards reform of the reinsurance collateral system, helping drive NAIC action by moving to unilaterally do away with the standard 100 percent of liabilities collateral requirement imposed on foreign reinsurers, and replacing it with a sliding scale based on a carrier’s capitalization and standing.

–Meanwhile, even though his old boss, Mr. Spitzer, made a name for himself in part by exposing shameless bid-rigging and contingency fee abuse by major brokers and carriers, Mr. Dinallo did not rush to judgment on the entire producer community. His efforts to encourage disclosure of agent and broker compensation has been rational and open-minded.

–Despite being a state regulator, he did not dismiss the notion of federal oversight out of hand. Instead of a knee-jerk reaction, he offered a thoughtful critique of the insurance regulatory system.
Yes, he reminded everyone repeatedly that state oversight was not to blame for the debacle at AIG (which was undermined by its unregulated Financial Products unit, while its state-supervised insurance subsidiaries remained sound and fire-walled off from the rest of the organization’s toxic holdings).

But while he conceded that a national systemic regulator might be needed, he warned strongly against any “optional” federal chartering, arguing that giving players the choice of referee would eventually ruin the game for all."

Sometimes, those in the insurance industry write and complain that I am unfairly criticizing the industry. Possibly true because my allegiance is to the policyholder and with that perspective. Yet, there is a need for thoughtful criticism of insurance, how it works and how it should work for society's benefit because unlike other forms of business, insurance is a social commercial product. It is not, and never has been, a business thought of as others in a "free market" sense. We need thoughtful regulators that will fairly balance competing financial interests of insurers with the needs of the consumers and society.

Florida Governor Charlie Crist is a wonderful public servant because he is very thoughtful. However, this trait makes it difficult to predict what he may do when faced with the possibility of a veto. While he has hinted he may, Crist still has not vetoed the insurance bill deregulating big insurance from rate making. As noted in the South Florida Business Journal, consumer organizations are worried:

"The Consumer Federation of the Southeast and Florida Public Interest Research Group claim HB 1171 would pit the largest insurers against the smallest, which would be hamstrung by regulation.

But, during a Wednesday news conference, Brad Ashwell, legislative advocate for Florida PIRG, said the answer is not deregulation of all companies. He said that rates need to more closely conform to real risk, and that keeping rates artificially low, as Citizens Property Insurance Corp. did for several years, is not the answer.

Walter Dartland, the consumer federation’s executive director, emphasized that partial or complete deregulation is not the answer, either. He maintains that the state’s rate review process has been a valuable consumer protection tool against arbitrary rate increases.

A practical solution would need to involve a deeper pool of insurers, specifically smaller ones, and higher rates that are regulated, Ashwell said.

“Florida is in the midst of an economic crisis, and our residents cannot afford to be caught in a volatile insurance market faced with erratic rate increases," he said.

But, the insured also have to be realistic about the impact a hurricane would have on them. Floridians will not be able to avoid assessments.

“It’s just a question of how big the assessment will be,” Ashwell said.

The bill awaiting Crist’s signature would allow major carriers, such as State Farm, which earlier this year said it would leave Florida, to raise rates unchecked without a guarantee that they would continue writing policies in the state.

Dartland said his organization would encourage State Farm and others to poach the customers with the least risk, leaving those with the most for companies that are least capable of paying out in the event of a storm.

“This doesn’t help anybody except the few companies that are involved,” he argued."

While waiting on Crist's decision in Florida, Texas TWIA politics is getting more frustrating to observe by the day. In my post yesterday, TWIA Bill Moves Along in Bizarre Manner, I noted how the Texas Senate literally pulled the plug on the Senate clock to get legislation passed within the time allowed. The Southeast Texas Record noted the following:

"The state Capitol has been a colorful place the past few weeks, with lawmakers resorting to stalling tactics one day and marathon approval sessions the next. The Senate managed to suspend time to avoid a deadline, and late into one night Senators could be heard crowing like roosters to cast their vote on a cockfighting bill."

These are the people Texans have to trust to make thoughtful decisions on laws to be followed. The article, "Hundreds of Bills in Limbo as End of Texas Legislative Session Looms," also mentioned that the TWIA legislation is mired in limbo as well. We'll keep you posted.

Bennett sponsored the bill that became HB 1171, which will raise insurance rates. Bennett and State Farm lobbied for this bill, claiming it would give consumers "choice." McCarty wrote a letter to Governor Christ indicating that Bennett's bill would help the insurance industry, not Florida insurance consumers, and that Crist should veto it. Bennett was publicly embarrassed, and published a letter trying to explain why McCarty should get terminated. Now, Florida Senate leader Mike Fasano and Governor Charlie Crist, past champions of policyholders crying for reduced rates, have come out supporting McCarty against Bennett's very personal attack.

The Miami Herald reported Governor Crist's view:

"Gov. Charlie Crist had nothing but praise for Insurance Commissioner Kevin McCarty, despite Sen. Mike Bennett's call for him to resign.

"I don't agree with that,'' Crist said."I think the commissioner has done a great job, and I have enormous respect for him...I haven't reached a final conclusion on (the insurance rate legislation)."

Senator Mike Fasano's view was reported by Tampabay.com in a story titled, Fasano clashes with Bennett, backs McCarty:

"Republican Sen. Mike Fasano of New Port Richey has rushed to the defense of state Insurance Commissioner, whose resignation was demanded by Sen. Mike Bennett of Bradenton in a letter to Gov. Charlie Crist.

"He is one of the most highly qualified and experienced individuals to hold this important post," Fasano said in a statement issued Friday from a legislative aide's BlackBerry. "Florida needs his steady hand to steer through the unique insurance challenges that continue to be part of Florida's landscape."

Fasano's statement did not mention Bennett by name, but he got his point across by ending this: "In a town in which insurance companies wield so much power, he (McCarty) has been a voice of reason and stability. During the many years I have worked with him he has never hidden his deep desire to make sure that consumer-friendly legislation and policy were his top priorities."

Kevin McCarty wrote a letter explaining why Bennett's legislation was not in the best interest of Florida consumers. This letter embarrassed Bennett because it is true--the bill unnecessarily raises insurance rates of Bennett's constituents, but Bennett was not counting on McCarty to say that. McCarty's letter probably worries every legislator who voted for it:

Impact on Consumers
As a result of the unprecedented storm seasons of 2004 and 2005, Floridians were hit with dramatic increases in their homeowners insurance rates. Realizing that families across our state were struggling to afford these premium increases, you led the effort to pass HB lA in January 2007, which yielded rate decreases on the average of 15.9% statewide. Since that time, rates have remained relatively stable for most of our residents.

HB 1171 will reverse the trend begun by HB 1A by exempting certain insurers from a
determination that their rates are "excessive or unfairly discriminatory." These
companies will be permitted to charge a rate that is substantially higher than the
actuarially sound rate approved by the Office. The result will likely be significant and
unpredictable rate increases that, during these difficult economic times, people can
simply not afford.

Impact on the Insurance Marketplace
Florida has added 40 new property insurance writers with more than $4 billion in capital since 2006. The Legislature invested $250 million to attract new capital for companies committed to the Florida marketplace. Largely because of this new capital, more than 400,000 policies were taken out of the state-run Citizens Property Insurance Corporation in 2008, reducing its exposure by more than twenty percent.

HB 1171 will disrupt the effort to build an increasingly competitive insurance
marketplace and treat certain insurers differently than emerging Florida domestic
companies. This has the potential to harm consumers and investors who have worked in good faith to create a competitive marketplace that has benefited all Floridians.

Impact on State Farm's Withdrawal Plan
State Farm would have Floridians believe that because of its failure to obtain a rate
increase it was forced to present a plan to exit the state. State Farm's rate filing was
woefully unsupported. The Office's disapproval of the rate filing was subsequently
upheld by an independent administrative law judge. It appears State Farm used this as an exit strategy rather than taking responsibility for abandoning its agents and policyholders.

Moreover, State Farm is overexposed in the homeowners market and will likely not offer coverage to many of its policyholders irrespective of its freedom to charge an excessive rate. In fact, State Farm and other companies may actually use excessive rates to effectively non-renew policyholders under the ruse of consumer choice.

It is important to remember that in 2002, the former Department of Insurance allowed State Farm to write condominium insurance at an unregulated rate. The results were not beneficial for Floridians. This company dramatically increased rates over several years and shortly thereafter non-renewed every policy in the state. There is no reason to believe that this proposal will result in anything different.

It is unfortunate that this bill is being presented to you as an effort to promote "consumer Choice.” I believe the bill sponsors attempted to pass legislation that would allow State Farm policyholders to continue to secure coverage from that company in the future. This legislation is more far-reaching than is necessary. Current laws already allow insurers to offer two options at higher than approved rates. Insurers may offer policies on a consent to rate basis or on a surplus and excess basis.

I believe this legislation has negative consequences both for the people of this state and for the insurance industry as a whole. As always, I am available to answer any
questions.

Sincerely,

Kevin M. McCarty
Commissioner

In A Balanced Perspective Regarding the Politics of Insurance Legislation, I noted how well meaning politicians, like Senator Mike Bennett, may get bamboozled by insurance lobbyists. State Farm lobbyist, Mark Delagal is sharp and very persuasive, but his only concern is pleasing State Farm--not their policyholders or customers. Another insurance lobbyist told me this week that State Farm is pulling out all the stops and has hired heavy Republican lobbyists Mac Stapanovich and Jim Magill to sway Governor Crist into breaking his campaign promise to not raise rates.

In that post, I commented on a scenario of what Bennett's constituents will say if this law is passed:

"Edna, I am really excited about this new law. The old fair rate approved by the Office of Insurance Regulation has been wiped off the books by our genius Florida legislators. Next year, we will get the same insurance, and it will cost as much as our carrier wants to charge us. This is because our insurance carrier no longer has to worry about applying for a fair rate."

I find it curious that State Farm, a mutual insurance company, can use money for lobbyists to help make laws that harm its own owners/customers. State Farm has ten lobbyists registered on its behalf. It has a public relations effort trying to place comments into newspapers and a full time "independent" agent force working on this effort. It has the rest of the big players in insurance now working on this as well. 

Florida insurance consumers must understand that the insurance industry has numerous full time employees and lobbyists working on their behalf attempting to persuade the government to make laws that "game" the outcome of rates, profits, and claims to favor the insurance company. For example, Sam Miller of the Florida Insurance Council is a masterful strategist and lobbyist for the insurance industry. He works with insurance company employees and lobbyists to get Florida elected officials to safeguard the interests of insurers by making laws that favor insurers versus those that help the policyholders. Next week at the Destin Hilton, his group will host legislators at its 2009 Summer Insurance Symposium and talk with them regarding insurance company legislative interests. As far as I know, the public is not invited, and certainly yours truly is not getting an invite. But, the following State legislators are invited:

Golf Tournament Honorary Host Senator Garrett Richter
Fishing Tournament Honorary Host Representative Pat Patterson
Rep. Janet Long
Rep. Marti Coley
Rep. Brad Drake
Rep. Clay Ford
Rep. Dave Murzin
Rep. Jimmy Patronis

None of this is illegal to my knowledge. Indeed, insurance is an important business in Florida. Unlike private services or manufactured goods, it is a uniquely important social product upon which we are mutually dependent. The issue is whether our elected officials are more like Kevin McCarty and looking out for the consumer first or whether our elected officials are discussing and looking for something else behind closed doors with insurance executives. I strongly suggest all Floridians find out and let your voice be heard as to what you find. We need to support those champions of policyholders.

Would the insurance companies and their lobbyists ever be honest and completely transparent regarding their legislative agendas, motives, and goals? Could you imagine if our elected representatives demanded honesty as a prerequisite to legislation? Given that some are mutual insurance companies and owned by the policyholders (like State Farm), you would think they would never have a legislative agenda that would harm consumers by raising rates or avoiding consumer protection statutes.

So, why not require insurance companies to show their internal records regarding their motives in influencing legislation? After all, insurance is a business involving the "public trust."

After some reflection on these matters, I owe an apology and correction to some in my prior Blogs. My typical experience with most elected officials on a personal basis is that they want to help the people they represent.

I probably slammed many well meaning public servants too harshly. That deserves correction.

Insurance seems simple, but is very complex. I can appreciate some legislators simply not understanding the full impact of proposed bills and voting for laws they think are good but in reality, harm their constituents.

For obvious reasons, the insurance industry does not fully explain the impact of their proposed laws. Sometimes, I can tell in discussions that insurance lobbyists do not understand the full implications of what they do and say. They are just trying to make a living selling the company line.

It is hard for a person like me to keep up with legislation as it is being made. I have a full time job helping customers of insurance companies get paid what they deserve. I help run a very busy law practice. My expertise and understanding of these issues goes far beyond most legislators because I am involved with insurance consumers and these issues on a daily basis. It is my life’s work.

I feel for those trying to be a good representative and making decisions without fully appreciating the legal subtleties before them. I should cut them some leeway.

Insurance is one of the most important social products mankind has developed. There are thousands of knowledgeable agents peddling these valuable products which provide us with financial security and the peace of mind that if something catastrophic happens, a financial safety blanket is there. Businesses and people want to or are obligated to purchase insurance. While I know that many joke about avoiding their insurance agents, their services and products are significant investments all of us should make.

This Florida legislative session still leaves me troubled. I have difficulty understanding what so many of these hardworking, well-meaning representatives were thinking when voting for unregulated rates. Unregulated rates will result in rates higher than what the regulators would permit-even though the regulated rates give insurers a fair profit on their investment.

It sounds so stupid. Can you imagine this scenario:

Edna, I am really excited about this new law. The old fair rate approved by the Office of Insurance Regulation has been wiped off the books by our genius Florida legislators. Next year, we will get the same insurance, and it will cost as much as our carrier wants to charge us. This is because our insurance carrier no longer has to worry about applying for a fair rate.

The Palm Beach Post hit the nail on the head with Monday's editorial calling on Governor Crist to veto this awful legislation.

Additionally, I am going to represent a number of very disgruntled surplus lines policyholders. Many of them are business owners, and I will point to the political guys that damned them this session. I predict the new surplus lines law is so poorly conceived that even the surplus lines carriers and admitted carriers will be joining policyholders asking for it to be modified.

It is not fair that surplus lines carriers are free from all Chapter 627 consumer protections while admitted carriers have to comply. This law gives the surplus lines carriers a market advantage over the admitted carriers in Florida. Agents are going to find ways to get clients looking for "cheap" insurance into the surplus lines market. Less coverage will be offered, but at less price. Why the admitted carriers with approved forms and rates allowed that to happen is beyond me.

So, with the prospect of more legislative bargaining next year, maybe these insurance lobbyists were just creating job security. But, at what cost to the public?