Why do so many of our politicians play to the lobbyists and support laws that harm the average person and voter? This is exactly what has happened with important laws sponsored by the insurance industry lobbyists and then proposed by Florida Senator Mike Bennett of Bradenton and Representative Bill Proctor of St. Augustine. These politicians and other Florida political leaders have sponsored a law that would allow insurance companies to raise the rates of Florida policyholders as much as they want. Indeed, the law they support allows for insurance companies to collude with each other, since it calls for the complete deregulation of rates. As the insurance industry is exempt from anti-trust regulation, based on a bargain it made with the federal government in which it agreed to state regulation of rates, the insurers would be legally exempt from all regulation. Is this stupid or what? Do the Florida political leaders supporting this law think people will be happy when their rates go up 100% in a couple of years, or is this just a payback to the insurance industry and their lobbyists funding certain political action committee dollars? Or, giving them the benefit of the doubt, do they really understand the issue?

Sean Shaw went to Tallahassee Leon High School. He then went to Princeton, where many of our best and brightest get a chance. Is there any parent that would not be happy to have their child accepted to and educated at Princeton? He then came back home to Florida and went to law school in Gainesville. Alex Sink, a banker who became Florida’s Chief Financial officer, appointed Sean Shaw as the Florida Insurance Consumer Advocate. We are lucky to have such a very smart, passionate and open minded person giving up private gain to step into this role.

I am always for the policyholders. These are my clients. It would come as no surprise that my candid response to any Florida leader supporting the aforementioned deregulation law would be, Do Florida Legislators Think We Are Stupid? It is so clear why this law hurts consumers, and I invite anybody to challenge this statement I made in that post:

Now, our legislators have claimed that rates will stay the same and not go up if there are no regulations limiting what insurance companies can charge. Gimme a break.

Insurance companies want the regulation to cease so they can, as a group, raise the rates as much as they can—especially after hurricanes, when insurers leave the market or use the hurricane losses as reasons to raise prices knowing customers have no choice. This is what happened in the 1990s following Hurricane Andrew and after the 2004 and 2005 hurricanes.

Then, we had leaders that stood up to the insurance industry. Now, many legislators in leadership receive significant support and constant lobbying from insurance companies. The result is this anti-consumer legislation.

The legislators supporting this bill say that there will be more competition. I say that the insurance rates are going to rise with greater competition because the insurers are exempt from anti-trust laws, and there is no open market in insurance.

Our legislators are simply deceitful when they suggest this bill will lower rates or keep them the same. For example, State Farm would be charging significantly more had the Office of Insurance Regulation not stopped the requested increase. Under this bill, State Farm and all the insurers as a group could charge as much as they want.

It makes no sense, and it is very disingenuous to suggest that rates will remain the same because of more competition. There will be more competition at significantly higher cost if this bill passes.

I am no rocket scientist, but I can figure out when the sales pitch is a bunch of bunk. This is what many of Florida’s political leaders are trying to sell, hoping their supporters and constituents will not catch on that they have become closer and obligated to a more lucrative base—the insurance industry. I have made a promise to cite each politician supporting this bill so all Floridians can keep track. But, we need some "smarter" analysis from the man in the street common sense I subscribe to. And this is where Sean Shaw comes into the picture.

Sean Shaw and another consumer advocate, Bill Newton, of the Florida Consumer Action Network, recently wrote an opinion letter, Don’t Deregulate Insurance: Consumers Only ‘Choice’ Would be Bad, to the Palm Beach Post which stated in part:

While these provisions are similar to the "consumer choice" bill introduced in 2009, this legislation would allow all authorized property insurers, not just a select few, to charge any rate.

Imagine walking into your insurance agent’s office. Your agent places three policies in front of you. Two are with private insurers, and one is a Citizens policy. The private insurers’ policies are close in price, but the Citizens’ policy is significantly cheaper, for essentially the same coverage. Which would most consumers choose? The answer is obvious, especially in these tough economic times.

Sen. Bennett has stated that he filed this bill in response to the perception that Citizens’ legislatively set rates are driving private property insurers from Florida. Unfortunately, this bill does nothing to address Citizens’ rates. This legislation would only exacerbate the growth of Citizens by increasing the divide between Citizens’ rates and what other companies can charge. Because Citizens is backed by all Florida taxpayers, many legislators have tried to limit the state’s exposure by reducing Citizens. If private insurers can charge whatever they wish, Citizens is likely to see an increase in policyholders.

Finally, this proposal would allow all insurers to "cherry pick" customers, leaving many Floridians with nowhere else to turn but Citizens. South Floridians near the coast would see the largest increases in premiums, while Floridians who live more inland and in northern counties would see more favorable rates. When a hurricane hits, not only would Citizens have the majority of the losses, but its policyholders would have to pay that 15 percent assessment before any private insurance money was due.

Proponents of deregulation claim that it would bring new insurers to the market. However, no insurer has said publicly that it would enter Florida if the property market were deregulated. Deregulation also would strip out a huge layer of consumer protection for all Floridians. The average consumer does not have the resources to determine when a rate is excessive. The state has the resources to judge the fairness of insurance rates, and can provide a warranty of fairness to consumers. Deregulation would end this protection.

Another argument for deregulation is that it would end the subsidization of coastal properties by inland property owners. But significant state revenues are generated from coastal areas and flow inland. Any current subsidization of the coastal market helps the overall housing market in Florida. The issue of coastal property insurance rate subsidies has been successfully addressed in other states, such as Mississippi, and the answer has never been deregulation.

History has shown the problems deregulation can bring to Florida’s insurance marketplace. In 1968, Florida politicians attempted to deregulate the auto insurance market, based on many of the arguments being submitted by Sen. Bennett and Rep. Proctor. After rate increases as high as 23 percent, the legislation was repealed. The auto insurance market has remained regulated since 1971.

As consumer advocates, we are always encouraged when any legislator or industry group proposes an idea that seeks to improve the insurance industry in Florida. However, this bill would not lead to any sort of improvement; instead it would significantly hurt Florida’s consumers. If this legislation should pass, we urge Gov. Crist, as he did last year, to veto it.

Sean Shaw and Bill Newton have only the consumer interests in mind while making these public statements regarding how much you have to pay for rates and why this law is wrong. Guess what interests Senator Bennet and Representative Proctor are supporting when sponsoring laws to allow insurers to charge you whatever amount they want? Most of us are not that stupid that we cannot figure that out. I pointed this out in A Balanced Perspective Regarding the Politics of Insurance Legislation, where I made this observation of what we common types may find:

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."

I should also emphasize that another person dedicated to the study of insurance rates and consumer issues opposes this measure, Kevin McCarty, as I posted in Kevin McCarty Battles for Consumers and Against Higher Rates. Yet, I do not understand why some of our politicians are so motivated to help raise rates for businesses and consumers just to help the property insurance industry. Maybe the property insurance industry has their ear and pocket? Otherwise, Florida seems to be the only state in the Union to accede to the insurance industry’s goal of complete deregulation, collusion, and sky-high rates granted by ignorant state leadership. Nobody can be that dumb. Somebody has been bought off in one political way or another.

We need more of the Sean Shaw type of people’s advocate and less of the insurance industry advocate in Tallahassee. We need to keep track of and hold those politicians in the insurance industry’s pocket accountable.

  • Chip, Thanks for your kind words of support. I believe the legislators are wedded to an ideology that the market solves all problems. Certain think tanks support the view, and people like Bennett and Proctor end up working in a kind of echo chamber of ideas.

    The problem of price fixing insurance products is an old one. There are the usual difficulties in proving communication existed and debate over whether the parties need even collude openly. All that is necessary is for the small number of players to tacitly agree to maintain prices at or near a certain level. If consumers are not aware of the value of the product or that markets exist, they become victims instead of customers.

    The only way consumers can be protected is through regulation which insures that products are equal and information is available for comparison. This is more difficult than it sounds by far.

    For instance, does the insurance company have a policy of settling claims easily, or battling in court for every penny? That would be good to know when choosing your insurer, but consumers are woefully unaware.

    It is not easy to see how we can stop deregulation, but the Senate Insurance Committee probably needs to be the battle ground. Gov. Crist cannot be counted on to veto deregulation this year, because he is a primary race where the flawed market ideology is accepted without question. The goal of consumer groups, we the able assistance of advocates like Sean Shaw, is to make the public aware of what is going on before it is too late.

  • Paul

    Chip
    An interesting blog…it digs very deep into the craw of what persists to be the problem in Florida…those in Tallahassee and those managing the Residual Insurer or “The Insurer of Last Resort” as some refer to it in the State of Florida – Citizens (CPIC). CPIC was formed to provide an avenue, an outlet for homeowners to obtain insurance coverage, but at the same time provide stability and create competitiveness in the market among the private sector. They (CPIC) continue to out-smart themselves and the State by perpetuating issues that allow them to continually come under scrutiny…they are priced to be competitive in a market that they cannot afford to be in; or, at least that’s what we are being led to believe. Their own underwriting criteria allows a policyholer (held by a private sector carrier) to fall under their (CPIC) gracious umbrella as long as the premium they hold by that private carrier is 15% or higher than what Citizens would charge for the exact same coverage. Often it is…more often than one might think. Here’s the Catch-22…after that risk is rewritten and put into Citizens hands, they, (CPIC) in turn, place it into their take-out program and shop it out…then, that policyholder is petitioned by a CPIC take-out carrier, has the option to either accept the take-out carrier’s offer (usually with a negligible savings) or deny and remain with Citizens. Many accept the private sector offer only for that meager savings; or, roll the dice, avoid the “Insurance Shell Game” and stay with CPIC knowing (if they had played the game long enough) that the minor savings they would have received was only going to last that initial one year period until policy renewal and then “BANG” the bump, now again making them eligible for CPIC. This game continues to be played year after year…it’s the old “Shell Game”…one might begin to think that CPIC is attempting to provide themselves with job security, along with all the others in place entrusted to police the process. It’s an unscrupulous situation that Citizens perpetuates and unfortunately for those at the mercy of the slight-of-hand (the Florida Policyholders), it continues to persist making homeowners insurance a constant cloud above their heads…just another thing to have to worry about year after year. The State needs stability…it needs to rethink and do a serious rewrite and reflect on the issues at hand, the rules and those feeling the brunt of the situation. Those caught up, unintentionally, are getting tired. It’s labor intensive for all (the policyholder, the agencies, the underwriters, the staff etc.) involved. The only thing it does is continue to provide a sense of uneasiness. Being force fed political agenda is not what this country is about.