Joe Shea
Floridians are caught between the devil and the deep blue sea when it
comes to the insurance industry. While we have had aggressive regulation of pricing by the State Insurance Commissioner in the past
few years, we have had enormous insurance industry losses due to the
2004 hurricanes, with the result that a large number of healthy
insurers have left the state's homeowners without reliable coverage.
Inevitably, smaller players less able to take their place and meet
their obligations have prospered in the vacuum left behind.
That quandary was admirably pointed out in an investigative
report that ran Sun., Feb. 28, on page 1 of the Sarasota
Herald-Tribune. The reporters found that at least 38,000 homeowners
have policies with companies the state and industry believe are going
to fail soon, and at least 100,000 homeowners have policies with
companies that meet at least one of three criteria for the likelihood
of failure. There are companies out there with not so much as a
Website, phone number or contact name, doing business legally with a
Florida license. Dozens of companies - 48 have been identified - have
little more than the required $4 million reserve, and couldn't even
cover a house fire, much less hurricane losses. Homeowners banking on
them for coverage if disaster strikes are going to be sorely
disappointed.
Meanwhile, our Manatee County-based state legislators have been
working to remove any limits from what larger insurance companies can
charge homeowners for insurance. Last year, State Sen. Mike Bennet
introduced such legislation, which Gov. Charlie Crist vetoed last year.
This year, State Rep. Bill Galvano, an attorney, has introduced the
same proposal, and Bennet is backing it in the State Senate. We may not
know the outcome of the legislation until sometime around midnight on
the day the legislative session comes to a close, as hundreds of unread
and ill-considered bills are rushed to the floor for last-minute
passage when, they hope, journalists are not watching.
You might well make the point that if insurance rates were not
capped, the companies with no real reserves beyond the required $4
million could attract larger premiums and perhaps set themselves on a
sounder footing. But wouldn't it make a lot more sense to require
insurance companies to have reserves that are a fixed percentage of
their premium liabilities? But what that would really do is bring the
big companies back to the table. On average. companies like Allstate
have reserves of about $4,000 per policy; the smaller firms have
reserves on averagre of about $750 for each home. The larger insurers
would raise their rates - also, admittedly, their certainty of covering
losses - while the smaller ones would either vanish or be devoured by
the big fish. Their uncovered losses would become the liability of the
state's insurance guaranty fund, wich may prove to be underfunded, too.
The entire insurance industry, however, is in crisis. Under
pressure for reform, the firms often try to exaggerate losses and
demand inflated premium increases, hoping they will get at least a
portion of what they ask for. As in the health care business, where
insurers may be charged $1,000 for a toothbrush, $53 for an alcohol
wipe, $140 for a single Tylenol and for 41 IV bags at $23 each when
they only use one -- as CNN just revealed. They are also taken advantage
of by homeowners who want more than they deserve for their losses.
Some insurers, like State Farm, have just walked away from their
homeowner business, preferring to maintain automobile insurance
policies that are required by lenders and the state. Here, drivers are
a captive audience, and the income is vast.
Because no hurricane has hit Manatee County since early in the
last century, the $15,000 a year my homeowner's association pays for
insurance has been essentially wasted; had we started a self-insurance
program 10 years ago, the $150,000 we'd have piled up in reserves would
go a very long way to fixing any issues associated with hurrcane
damage to our 32-unit building. Instead, we have thrown the money down
on the altar of the great god Insurance, where it bursts into flame. In
my estimate, however, the believers are diminishing in number and many
are becoming skeptical of the value of their needless sacrifices.