Amazing as it seems, one insurer plans to increase rates, even though we have gone years without a hurricane. As reported by Colodny, Fass, Talenfeld, Karlinsky & Abate, First Home Insurance requested a 39.3% overall Homeowners Policy rate increase from the Office of Insurance Regulation. Had the "free insurance market" legislators had their way, First Home could charge their customers nearly double last year’s rates, and the customers would have no recourse — except the "free market."
According to the OIR, First Home, based in Maitland, Florida, has 17,424 policies across the state, including 11,603 that would be affected by the proposed rates. About 2,600 home and condominium unit owners would be affected in Broward, Palm Beach and Miami Dade counties, as well as approximately 3,200 Orlando area homeowners in the Orlando area. First Home’s requested 39.3 percent overall statewide rate increase includes an 87 percent increase on windstorm premiums. The company’s condominium unit insurance premiums would increase by 27 percent.
The issue of the expenses paid to Florida insurers’ managing general agents is significant. The Office of insurance regulation seems to be taking note:
Representatives from the Florida Insurance Consumer Advocate’s Office also testified on First Home’s rate filing. Florida Insurance Consumer Advocate Terry Butler noted that his office will continue to support efforts to further regulate managing general agencies.
Florida Insurance Consumer Actuary Steve Alexander indicated his concerns with the trend and credibility of First Home’s HO-3 filing. He noted that the company had a fair rate of return on surplus at 10.48 percent. However, he took issue with what as he described as "an unreasonably high" expense ratio. Mr. Alexander questioned the arms-length nature of the MGA/insurer relationship.
As indicated last spring in Breaking News Story: Florida Insurers Hide Profits While Claiming Losses to Get Rates Raised, insurers can appear to lose money by paying large fees and expenses to closely held or related managing general agencies. By doing so, some insurers have understated the amount of true profit they have made. They still use those expenses in ratios that support rate increases. I noted:
Investors and executives in 2008 moved $1.9 billion in policyholder money out of heavily regulated insurers, where profits are capped and dividends are restricted, to separate companies that are owned by the same people, housed at the same address and sometimes use the same employees.
Meanwhile, insurance executives complained about losses and state-mandated discounts, and pressured state regulators for permission to charge homeowners more — even to end rate regulation altogether.
The obvious lesson from this, is that many insurers dishonestly claim that they are not making fair returns as a basis to change or deregulate Florida’s insurance market and insurance law. Our elected officials, appointed regulators, and media should be skeptical of insurers’ histrionics regarding the dire financial straits they are facing. Often, it simply does not add up.