Veto 2044

May 19, 2010

Office of Governor Charlie Crist
State of Florida
The Capitol
400 S. Monroe St.
Tallahassee, FL 32399-0001

Honorable Governor Charlie Crist,

I am writing on behalf of the members and board of directors of Florida Consumer Action Network (FCAN) to request that you veto Senate Bill 2044 relating to property insurance. While I think extending “file and use” is good, there are too many bad items in the bill for consumers, especially rate increases.

For the record, my understanding is that insurers will be able to raise rates to compensate for mitigation discounts, whether that is part of another rate increase or on its own. The provision puts in law the concept that insurers shouldn’t accept lower profits because of investments in mitigation. I see a problem with this idea, because the savings from mitigation are long term, and insurance company profit reports and rate filings are annual. They’re not likely to see benefits from mitigation discounts this year, but over 20 years, it should add up. However, with this concept that they must not make a real investment (part of their profit) in mitigation, neither insurers or consumers will see as much benefit from strengthening homes. Mitigation is the only way to lower risk and ultimately lower insurance rates. This seems to me to be a very bad provision for consumers.

Second, the replacement cost issue is very anti-consumer. My position is that you buy insurance for a certain amount of money. I pay premiums and the insurance company agrees to pay me money if a loss as defined in the policy takes place. Policies can be written for either actual loss or replacement value. In either case, the loss resolves to a cash value. Replacement cost is currently determined by an adjuster or perhaps a contractor surveying the situation and using current market costs to determine how much it will cost to replace the damaged parts. 2044 changes that and says that even if you pay for replacement cost insurance, you won’t get paid that amount unless your house is a total loss or you actually replace the damaged part and the insurance company inspects and agrees to your replacement. I don’t see what business it is of the insurance company how I spend the money. Instead, this provision means they won’t have to pay out fully on some claims. It will increase their profits, and consumers will not get the value of their policies. There is no way this is good for consumers.

While “file and use” is worthy, if we must live without it we can. If insurers raise rates, it will not only expose their intentions, but they will still have to prove to the insurance commissioner that they deserve the increase. The legislature should have addressed this separately and I don’t feel you should accept this bill just because of this provision.

OIR maintains that the higher reserve levels contained in the bill are necessary to protect consumers. I disagree. OIR is already mandated to regulate for solvency, and they should do so. Consumers are protected by the Florida Insurance Guaranty Fund. We can’t lose out even if the company does go under. Does OIR think crooks are running some of these companies and they don’t have the tools to fight? There isn’t that much here to fight with, and we’d be glad to support a bill that would give them the tools. In the meantime, if it is really a crisis, they should ask for fraud investigations on some of these people and perhaps even emergency powers if needed.

I just don’t see anything here that’s worth it for consumers. There’s lots of gifts for insurers, who are back to making excellent profits. Even Citizens is making money. Insurers don’t need this gift basket from the legislature. Please veto 2044.

Sincerely,

Bill Newton
Executive Director

Senate Bill 2044

I am hearing from the Insurance Consumer Advocate office and Office of Insurance Regulation in favor of 2044. They are suggesting that our take on mitigation discounts and replacement costs isn’t correct. Here is a summary of 2044 created by the ICA.

For the record, my understanding is that insurers will be able to raise rates to compensate for mitigation discounts, whether that is part of another rate increase or on its own. The provision puts in law the concept that insurers shouldn’t accept lower profits because of investments in mitigation. I see a problem with this idea, because the savings from mitigation are long term, and insurance company profit reports and rate filings are annual. They’re not likely to see benefits from mitigation discounts this year, but over 20 years, it should add up. However, with this concept that they must not make a real investment (part of their profit) in mitigation, neither insurers or consumers will see as much benefit from strengthening homes. Mitigation is the only way to lower risk and ultimately lower insurance rates. This seems to me to be a very bad provision for consumers. Perhaps the ICA or OIR can explain where I am wrong.

Second, there seems to be an issue on the replacement cost issue. My position is that you buy insurance for a certain amount of money. I pay premiums and the insurance company agrees to pay me money if a loss as defined in the policy takes place. Policies can be written for either actual loss or replacement value. In either case, the loss resolves to a cash value. Replacement cost is currently determined by an adjuster or perhaps a contractor surveying the situation and using current market costs to determine how much it will cost to replace the damaged parts. 2044 changes that and says that even if you pay for replacement cost insurance, you won’t get paid that amount unless your house is a total loss or you actually replace the damaged part and the insurance company inspects and agrees to your replacement. I don’t see what business it is of the insurance company how I spend the money. Instead, this provision means they won’t have to pay out fully on some claims. It will increase their profits, and consumers will not get the value of their policies. There is no way this is good for consumers.

If these things are bad, then what balances them out? What is so darned good in this bill that OIR and ICA want the bill signed? File and use? I don’t buy it. It isn’t worth it. MGA’s? They can go after them other ways. Higher reserve levels? OIR is already mandated to regulate for solvency, and they should do so. Consumers are protected by the Florida Insurance Guaranty Fund. We can’t lose out even if the company does go under. Does OIR think crooks are running some of these companies and they don’t have the tools to fight? There isn’t that much here to fight with, and we’d be glad to support a bill that would give them the tools. In the meantime, if its really a crisis, they should ask for fraud investigations on some of these people and perhaps even emergency powers if needed.

I just don’t see anything here that’s worth it for consumers. There’s lots of gifts for insurers, who are back to making excellent profits. Even Citizens is making money. They don’t need this gift basket from the legislature. Its just legislators ingratiating themselves to their funders.

I am hoping for a response from the bill’s supporters.