A lot of Floridians have had this experience: they get word from their homeowners insurance company, call it XYZ Florida Insurance, that their premium’s going up because of huge losses. A couple weeks later, they see a story in the business pages about XYZ Insurance USA, based in Connecticut, reporting a big profit.
National insurance companies often carve out their Florida business into a separate company, insulating the parent company from losses in the hurricane-prone state.
Republican gubernatorial candidate Charlie Crist said Tuesday that the practice should end, and argued that national companies ought to spread the risk to other states, which he argues would help keep Florida homeowners’ rates lower.
“I think that’s a shell game,” Crist said in an interview with The Associated Press. “They have this fiction they create, a legal fiction that we can make illegal, that they will set up this separate Florida corporation which then gives them then the opportunity to go to the appointed insurance commissioner and say, ‘Look at the horrible losses we’ve had’ … completely ignoring the fact that their national parent has been making billions and billions and billions.”
“It’s ludicrous,” said Crist, who is currently Florida’s attorney general and vying with state Chief Financial Officer Tom Gallagher to be the Republican nominee for governor.
Insurance companies say it’s not that simple and argue that if they had to charge higher rates elsewhere to make up for repeated losses in Florida they’d simply bail out of Florida.
Many Florida policyholders don’t realize that their big name Florida insurance company is separate from the “mothership” and when they find out, they don’t understand why.
“The answer is that otherwise the mothership wouldn’t do business in this state,” said George Grawe, an executive vice president at Allstate Floridian, which is technically separate from the national company, Allstate. “The reason that a company like Allstate needs to have the ability to operate a separate and distinct entity like Allstate Floridian is that otherwise we wouldn’t be able to write home insurance policies in Florida.”
The Florida offshoots are known as “pup companies.” They’ve been allowed in Florida since 1996, four years after Hurricane Andrew destroyed much of Homestead, causing $30 billion in damage. Companies were threatening to leave.
Gallagher, Crist’s opponent in the Republican primary, generally agrees, having said the rules never should have been changed to allow such Florida-only companies. But he’s also said during his campaign that now that they do exist, “the genie can’t be put back in the bottle.”
Insurance regulators and company officials say that if the pups were shut down or forced to be absorbed by their national parents, not only would some pull out, the shareholders of the national firms would sue.
Grawe noted that before 1992, the parent Allstate did have policies in Florida, but “the losses sustained as a result of Hurricane Andrew nearly caused Allstate to become insolvent.”
Most large insurance companies have similar fears about Florida, which is why so many people here have problems finding a policy.
“A company cannot allow one state to threaten their solvency,” said Sam Miller, a spokesman for the Florida Insurance Council, which represents several property insurance companies.
Allstate Floridian and other large insurers have been bailed out by their parent companies on a few occasions in recent years. After the Florida company took a big loss from the 2004 hurricanes, its parent company pumped $300 million into it and provided backup again in 2005. Other companies have done the same, Miller noted.
Insurance companies also note that insurance companies are regulated at the state level, not nationally. That means they have to justify their rates to a state insurance regulator.
And they argue that it would be hard for a company to go before a state insurance regulator in Michigan, for example, to argue it needs higher rates there to make up for hurricane losses in Florida, insurance executives say.
Or, as Grawe put it, “The rate in the state is dependent on the loss you have in that state.”
Meanwhile on Tuesday, a state panel appointed by Gov. Jeb Bush began a series of meetings aimed at making recommendations on what lawmakers should do to deal with rising home insurance costs and the difficulty homeowners and companies have in getting coverage.
Democrats renewed calls for lawmakers to return to work on changing the law sooner, rather than waiting for the panel to make recommendations. Democrats in the Legislature have suggested a state insurance fund that would pay out damages after hurricanes up to a certain point, at which time private insurance would kick in. That idea has been rejected by Bush and other Republicans as unworkable.
“While Republicans stall waiting for yet another unelected commission, homeowners and small businesses continue to be hammered by insurance company rate increases,” said Rep. Dan Gelber, D-Miami Beach, who will be the House Democratic leader next year. “The only way to solve this problem is to bring everyone back to Tallahassee, lock the doors and demand a solution.”
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