Veto HB 1171 -- State Farm Bailout

Gov Charlie Crist is currently considering whether to sign or veto HB 1171, which we call the "State Farm Bailout" and which the Florida House calls "Consumer Choice." FCAN urges all its members to immediately call, email, or fax the Governor requesting a veto of this bill.

HB 1171 would allow insurance companies like State Farm to sell the policies they are currently selling at any price they wish and those policies would be exempt from assessments by the state. Unfortunately, an amendment requiring the companies to continue to sell their current policies at the state approved price failed, meaning the companies would be able to only offer the higher priced policies. Essentially, homeowner's insurance would be deregulated. State Farm was turned down recently for a 60% rate hike, so we assume that would be the new price of their policies.

The result of this bill will be skyrocketing insurance costs and a flood of consumers into the state run Citizens Property Insurance. What are the consequences? Certainly, higher profits for insurance companies, higher rates for consumers, and beyond that, the unknown. We don't know what would happen with Citizens or the rest of Florida's homeowner insurance market.

Background

Homeowner insurance is regulated for several reasons. Insurance policies are quite complicated, and regulation allows consumers to know that they are truly protected by their policy. Insurance companies are also regulated for solvency, meaning the state makes sure that they have sufficient funds to pay claims. This is very much in the public interest, because the rest of us would have to pick up the cost of those claims because of the Florida Insurance Guaranty Association or FIGA. FIGA is like FDIC for banks. It means you can rest assured your claims will be paid.

Insurers aren't required to be regulated. Unregulated companies are called "surplus lines" carriers and you are on your own in dealing with them. It is a "buyer beware" situation. Chubb is a large surplus lines carrier as is Lloyd's of London.

But State Farm and others like them don't want to be unregulated because they would then lose the protection of FIGA and the approval of the state for their policies. One of the largest benefits is the ability to purchase discount "reinsurance" from the state Cat Fund. Naturally, insurance companies don't want to give up that benefit and would no longer have to pass along those savings to consumers. They want to have their cake and eat it too.

State Farm tried to prove it deserved higher rates in hearings before the insurance commissioner, an administrative court judge, and an appeals court judge. They lost every time. So, according to the St. Pete Times, they spent $204,998 lobbying the legislature this year and it seems that HB 1171 could be the result.

Take Action

Our state insurance department has done a good job in regulating our insurance companies, and now it no time to roll the dice on our economic future. Floridians need the assurance of regulation to know their policies are worth what they are paying.

Contact Gov Charlie Crist at 850-488-4441 or email charlie.crist@myflorida.com The fax number is 850-922-4292. Tell him to VETO HB 1171!

Insurance Campaign Contributions

Julie Patel posted this article on SunSentinel.com pointing out that "Florida legislators, received nearly $2 million in insurance-related contributions since the start of 2008"

Also, followthemoney.org documents $115,172 in donations to legislators from State Farm agents in 2008.

Consumer advocates ask Gov. Crist to veto home insurance deregulation
> Posted by Julie Patel on May 6, 2009 03:17 PM

Four consumer advocacy groups implored Gov. Charlie Crist today to veto a bill that would allow large insurers to charge essentially unregulated rates.

"This bill is an invitation for insurers to game the Florida regulatory system and abuse consumers," said officials from the Consumer Federation of America, Consumer Watchdog, Center for Economic Justice and United Policyholders in a letter to the governor. "No price can be too high, no discrimination can be found unfair if a policy is issued under these terms."

Bob Hunter, insurance director for the Federation who occasionally consults for state regulators, said deregulation failed in Texas where he was the insurance commissioner. Insurers wouldn't sell policies or they'd only sell policies "at very excessive rates," according to the letter.

Sen. Mike Bennett (R-Bradenton), who pitched the Senate version of the bill, told legislators last week to support the measure "if you really believe in the free market [and] you really believe constituents should be able to pick an insurance company of their choice even if they're willing to pay more."

Florida legislators, who received nearly $2 million in insurance-related contributions since the start of 2008, approved six home insurance measures that were backed by insurers this year and two that weren't. Included in the half dozen measures is the deregulation bill and a broad property insurance package aimed at drawing insurers to the state and reducing financial risks for Floridians if a major hurricane hits.

"Loosening the regulatory chokehold on private insurers and requiring the residual market to pay its own way are positive moves," Cecil Pearce, American Insurance Association's state affairs vice president, said in a statement.

Veto State Farm Bailout Bill

May 7, 2009

Honorable Governor Charlie Crist
The Capitol
400 S. Monroe St.
Tallahassee, FL 32399-0001

Honorable Governor Crist,

RE: HB 1171 The Insurance Company Choice Bill

On behalf of the thousands of members of Florida Consumer Action Network (FCAN) and our Board of Directors, I urge you to veto HB 1171, the bill on your desk that would deregulate Florida’s insurance companies. I feel this bill would be a disaster for the state – causing skyrocketing insurance rates, floods of new customers into Citizens, and disruption of our fragile insurance market.

The bill is really an “insurance company choice” bill, not a “consumer choice” bill as it is misnamed. If you sign this bill, insurance companies can choose to stop offering their current policies and offer policies at unregulated rates instead. State Farm would gain the most, since they would be able to raise their rates the 67% they were denied by the Insurance Commissioner and the courts. What they were unable to prove they deserved, they were able to lobby through the legislature. Its not fair.

Companies like State Farm currently benefit from discounted reinsurance rates from the taxpayer subsidized Cat Fund, yet under 1171, they would no longer have to pass along those savings to consumers. That’s not fair. State Farm’s policies would still be backed by the Florida Insurance Guaranty Fund (FIGA) as if they were regulated. If insurance companies really want deregulation, they can immediately be deregulated by becoming “surplus lines” companies. They don’t really want it. They want the backing of the state without the responsibility, like children.

Our thousands of members have greatly appreciated the way you have stood up to insurers and worked to hold down rates. You called State Farm’s bluff, and now we want to see what cards they are really holding. I agree with you: they’re too high priced and good riddance. I also think they are too greedy to actually leave.

Please veto this bad bill and remain the champion of insurance consumers throughout the state.

Thank you,

Bill Newton
Executive Director