Fla. Bills Propose Standardize Policies, Rating Territories; Might Lower CAT Cap

March 28, 2005

Standard insurance policies, standard rating territories and lowering the cap from $4.5 million to $4 million on the amount of insured losses that a company has to sustain before drawing money from the Catastrophe Fund are all provisions in two bills being considered this week by the Florida House and Senate. Both the Senate Banking and Insurance Committee and the House of Representatives’ Insurance Committee will vote on the proposals this week after they return from the long Easter weekend.

The requirement of standardized rating territories would require all homeowners insurance policies written in Florida to offer the same basic deductibles and set rates based on the location of property. The Financial Services Commission, comprised of Gov. Jeb Bush and the Cabinet, would determine standard ‘rating territories all insurers would have to use in setting rates.

“They’re both fairly aggressive bills,” William Stander, Property Casualty Insurers Association of America regional manager told the Fort Lauderdale Sun-Sentinel.

Both bills also propose to exempt Citizens Property Insurance Corp., the insurer of last resort, from the requirement not to be competitive and to charge the highest rates of the top 20 companies in a market. In areas like South Florida where private-market options are few, legislators say people shouldn’t be forced to pay the highest rates when they can’t get coverage elsewhere.

According to the proposals the Florida Office of Insurance Regulation would determine what counties don’t have a “reasonable degree of competition.” And in those places, Citizens would charge an “actuarially sound rate” to cover the expected loss in an area, set aside money for anticipated future losses and keep the company solvent.

Citizens spokesman Justin Glover told the Sun-Sentinel the measure could backfire in high-risk areas where Citizens writes policies for most of the market. Citizens is now conducting an actuarial review of its rates. “You might see this legislation not producing the effect that’s intended, if the intent is to actually lower the rate,” he said.

More choices in insurance deductibles of 1, 2, 5 and 10 percent would be provided in the Senate bill. Current law calls for either a 2 or 5 percent offering. Most Floridians have a 2 percent deductible. Homeowners could adopt higher hurricane deductibles to lower their premiums. If they want to pay more money, a 1 percent deductible would mean fewer out-of-pocket expenses.

However, if people choose the higher deductible, they’d take on more of the risk themselves. With a 10 percent deductible and $200,000 in coverage, a homeowner could be on the hook for $20,000 of repairs.

People who select that higher deductible should know what that translates to in real dollars, and “it should be very plain to them” that they’ll be responsible for that expense after a storm, Robert Hartwig, chief economist for the Insurance Information Institute told the Sun-Sentinel.

The Senate bill proposes an advisory committee, appointed by the chief financial officer to develop a standard homeowner policy with the same types of basic coverage. The committee would have until Jan. 1 to make its recommendations to the state’s Office of Insurance Regulation.

With a standard policy, consumers could compare costs more easily between insurance companies and make their decision based on other factors, such as an insurer’s service or other products offered.

Both the House and Senate bills call for the Financial Services Commission to adopt rules by Jan. 1 to create standard rating territories that all insurers would have to use in setting rates.

Standard policies and standard rating territories go hand in hand, because you can’t have standard policies if the companies aren’t using the same territories to set their rates, said Bob Lotane, a spokesman for the Department of Financial Services.

“If you have standard policies without standard territories, you’re working at cross purposes,” Lotane said.

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