Senators Grill Insurance Officials About High Rates

Tuesday, February 05, 2008

By Lloyd Dunkelberger & Joe Follick

In a remarkable showdown, Florida lawmakers began grilling insurance executives under oath on Monday, trying to find out why property insurance costs have soared in the last year despite a far-reaching state law that was designed to cut rates.

But the hearings, which will continue today, in the Senate’s Select Committee on Property Insurance Accountability may not yield any dramatic results.

“I haven’t seen so much bobbing and weaving since Muhammad Ali did the rope-a-dope,” said Sen. Bill Posey, R-Rockledge, during testimony by Allstate Floridian. “When we get the nebulous answers, it just gives me more questions. We could be doing this forever.”

Posey said the Senate hearings were not “a witch hunt,” but that senators were trying to understand “why the numbers didn’t add up.”

The numbers revolve around the sweeping 2007 insurance law passed shortly after Gov. Charlie Crist took office last year. By assuming a greater risk in providing backup insurance - jumping from $16 billion to $28 billion - for catastrophic hurricanes, state officials expected rate reductions in the range of 24 percent from the property insurance companies.

Instead the initial property rate filings came in with an average 15 percent reduction. But state officials were more stunned by a second series of filings where some companies asked for rate increases in excess of 40 percent.

Allstate Floridian Insurance Co. asked for an initial rate cut of 14.2 percent, but later filed for a 43.4 percent increase.

State insurance regulators opposed the rate hike and then ordered Allstate to stop selling any new insurance in the state, accusing the company of balking at delivering documents related to a series of subpoenas issued by the state. An appellate court block the state’s action - which is now part of an ongoing legal fight.

State Insurance Commissioner Kevin McCarty defended the state’s action on Monday, telling the Senate panel that the order to stop selling insurance was “the right thing to do” in order to get Allstate to cooperate.

“In my experience this was one of the most blatant disregards for an office request for documents that I’ve seen in my 10 years as insurance commissioner,” McCarty said. The committee questioned Allstate Floridian officials for more than four hours - after the executives had to raise their right hands and swear that they were telling the truth. The oath, however, did not extend to clarity. Senators were repeatedly angered by Allstate officials’ reluctance to explain why their rates needed to go up after the state offered the cheap reinsurance last year. Sen. Jeff Atwater, R-Palm Beach Gardens, asked whether the company had intentionally created a forecast dependent on the short-term warming of the ocean in an effort to raise potential risk in the future and justify higher rates. “I’m not sure I received an answer that’s comforting to me,” Atwater said of Allstate’s responses. “We are here today to make sure as legislators that this industry keeps its promise and that those who break their promise would be held accountable.” Sen. Ronda Storms, R-Valrico, said while the answers could have been more direct, it was important for the Senate to put the insurance executives “on the record.” “Any time we are pulling the curtains back and turning on the lights, it’s helpful to the public,” she said. “It’s tedious. It’s plodding. It’s difficult work.”

Even the most mundane questions, such as whether the company’s auto policies were profitable in Florida, were turned aside.

“You don’t know whether you’re making a profit?” asked an incredulous state Sen. Mike Fasano, R-New Port Richey.

“I don’t want to comment,” said Joseph Richardson, chairman of Allstate Floridian. Richardson also declined to talk about his salary or any bonuses that he might have received.

Richardson said the Florida-only company has lost money in recent years and that higher rates were necessary to bulk up for the future.

“Inadequate rates have caused an operating loss that continues to grow,” Richardson said. “(Allstate Floridian) faces the very real risk of being wiped out in the event of a bad hurricane season.”

But Richardson clearly wanted to at least slow the acrimony.

“Allstate and Allstate Floridian want to put themselves back on the proper footing with the (insurance commissioner) as soon as possible,” he said.

In contrast, testimony from Nationwide Insurance Co. of Florida officials later in the day was much more cordial. The civility may have been explained in part because Nationwide cut its rates by 20.4 percent after the new law took effect last year.

However, many consumers didn’t notice the cuts, since Nationwide also received approval for a 54 percent increase based on a rate filing that began in 2006 - before the new law took effect. The net result was a 20.9 percent rate increase for customers.

Jeff Rommel, a regional vice president for Nationwide, said his company’s customers saved, on average, $448 on their insurance premiums as a result of the new law.

And in contrast to Allstate, Rommel testified that Nationwide has made money on its auto business in the state - about $138 million over the last 20 years. But the auto profits were offset by $307 million in property insurance losses, for a net loss of about $169 million in the state.

Gov. Charlie Crist said on Monday that despite the ongoing fight, rates are getting better for property owners in the state.