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Insurance Reform is needed in Florida


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.


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