McCarty Releases Rate Reductions To Be Adopted By Florida Property Insurers
TALLAHASSEE (03/01/2007) - Florida Insurance Commissioner Kevin McCarty today released the property insurance discounts that insurers are required to pass along to policyholders. Legislation passed during the recent Special Session of the Florida Legislature required the Office of Insurance Regulation (Office) to calculate the Presumed Factors which establish how much savings the insurance reforms should yield for policyholders in various regions around the state.
"Gov. Crist promised Floridians lower insurance rates, and he has delivered," said McCarty. "Floridians have been forced to make difficult economic choices due to rising insurance premiums. They can take comfort that relief is on the way."
The Presumed Factor savings that insurance companies must file with the Office are to be applied to the hurricane premium and not to the entire premium of the policy. In many parts of the state the hurricane portion of the premium represents a substantial or even the majority percentage of the total policy premium.
For homeowners policies the discounts in region 1, which contains some zip codes in north Florida and the Panhandle, will be decreased by 10.2 percent of the total policy premium. The discounts will range to a decrease of 52.8 percent of the total policy premium in region 25, which contains some zip codes in Miami-Dade. Similar rate savings were released by the Office for manufactured homes, condominium units, apartment and condominium buildings and for renters' insurance policies.
The public needs to be aware, however, that these are average savings. Policyholders could see differing savings for a variety of reasons. These include the insurer already having an approved rate increase in the pipeline that will not appear until the policy's renewal date. Also, some insurers have capped increases in some territories and do not have all costs reflected in current pricing. Rate information can be found at www.floir.com
All residential insurers must make a filing containing new rates by March 15th to become effective for new or renewal policies beginning June 1st and thereafter on the renewal date of the policy. Insurers are also required to make a second filing which will "true up" the savings used by the insurer in the initial filing to reflect actual reinsurance savings. That filing can be made over the summer, but no later than September 30th.
The bill passed by the Legislature during January's Special Session expanded and provided valuable enhancements to the Florida Hurricane Catastrophe Fund (FHCF). The reinsurance coverage offered through the FHCF will be sharply lower in price relative to coverage currently being sold by private reinsurance companies. These savings are achieved due to the elimination of profit margins incorporated into the rates of private reinsurers, as well as the FHCF receiving favorable tax treatment from the IRS.
The Office hired J. Robert Hunter as a consulting actuary to help determine the rate reductions which are required to be incorporated in rate filings by all Florida residential property insurers. Hunter is the former insurance commissioner of the state of Texas and presently serves as the director of the Consumer Federation of America. Hunter was joined by Paul Walther, CPCU, ARe, who is a renowned reinsurance specialist and consultant.
Commissioner McCarty also said he is concerned that based on some of the reports and/or editorials published since his Presumed Factor Order (Case No. 89321-07), on February 19th, there appeared to be some confusion about that order, about Emergency Rule Number 690ER07-1, about the Commissioner's letter to the Financial Services Commission interpreting the rule, and/or about CS/HB 1A. He provided the following explanation of the issues surrounding these communications to help clarify any misunderstanding or misreporting.
The non-renewal provisions contained in Emergency Rule Number 690ER07-1 stated:
Until an insurer makes a rate filing reflecting the effects of CS/HB 1A and the presumed factor calculated by the Office, an insurer may not non-renew a personal residential insurance policy covering property in Florida,
The Emergency Rule did not say that non-renewals were prohibited for 90 days, and it did not say that non-renewals were prohibited for the 2007 hurricane season. It clearly stated that any non-renewals are only prohibited until an insurer makes a presumed factor rate filing.
Commissioner McCarty's February 7, 2007, letter to the Governor and members of the Financial Services Commisssion interpreting Emergency Rule Number 690ER07-1 said
1. Cancellations and non-renewals which were to take effect on or after the adoption of the Emergency Rule pursuant to notices of cancellation and non-renewal issued prior to the adoption of the rule, are prohibited;
2. Cancellations and non-renewals which were to take affect after the adoption of the Emergency Rule pursuant to notices of cancellation and non-renewal issued on or after the adoption of the rule, are likewise prohibited; and
And Commissioner McCarty restated the non-renewal provisions contained in Emergency Rule Number 690ER07-1:
3. No new notices of cancellation or non-renewal shall be issued until a rate filing reflecting the presumed factor is made.
Again, the Commissioner's letter did not say that non-renewals were prohibited for 90 days, and it did not say that non-renewals were prohibited for the 2007 hurricane season. It said that non-renewals - whether noticed prior to adoption of the emergency rule and having an effective date during the period of the emergency rule or after the adoption of the emergency rule - are prohibited until an insurer makes a presumed factor rate filing.
The Presumed Factor Order, released on February 19th, was mandated by CS/HB 1A - it was not a further clarification as was reported in some media outlets. It had nothing to do with Emergency Rule Number 690ER07-1. It was in response to Section 3 (2) of CS/HB 1A - Line 1030 through 1033 - which mandated that:
The office shall specify, by order, the date or dates on which the rate filings required by this section must be made and be effective in order to provide rate relief to policyholders as soon as is practicable.
The purpose of the timeframes contained in the order which was mandated by CS/HB 1A, was to allow enough time for:
-Insurers to produce filings that adopt the presumed factor calculated and published by the Office.
-The Office to review over 200 filings expected to be submitted by insurers.
-Insurers to configure their systems to send notices containing new rates to policyholders by April 15th. These notices must be sent by this date to meet the statutorily mandated 45-day notification for renewal notices. June 1st is the first day the new rates must be effective as required by CS/HB 1A.
The dates ordered by Commissioner McCarty will provide only a 45-day turnaround time for these three steps to be completed and for the Office and the industry to comply with the mandates of CS/HB 1A, which was the reason the Office worked to have the Presumed Factor calculated and released by today.