Gelber: Rubio's hands-off approach to insurance regulation won't work
By Ted Carter
Florida's property-insurance crisis is giving disciples of a hands-off approach toward market regulation a chance to prove themselves right. Perhaps no one has a higher stake in the success of the deregulation strategy than Republican state Rep. Marco Rubio, a Coral Gables lawyer who will take over as Speaker of the House in the fall.
The property-insurance issue is where "the rubber is going to hit the road" in 2007, predicted Rep. Rubio's Democratic counterpart, Rep. Dan Gelber, a Miami Beach lawyer and House minority-leader-designate. As Rep. Gelber sees it, Rep. Rubio and other Republican leaders are worsening the crisis by ignoring Democratic pleas for "a more innovative strategy."
To get their message to voters across Florida, Rep. Gelber and other Democrats have launched Stormingmad.com, a Web site that details key elements of property-insurance legislation that House Republican leaders declined to consider in the 2006 session.
Rep. Rubio does not dispute that higher premiums are ahead and more insurers are likely to leave the state. But that's a short-term problem, he said last week at a luncheon gathering of the Brickell Area Association. More pain is ahead, the 35-year-old legislator told the Brickell gathering.
"I believe it could get worse," he said. He said he thinks Florida's property-insurance rates have been "below realistic levels" and cautioned against tampering with the mechanics of the market. "You have to let the natural market adjust," he said.
Rep. Rubio defended the Republican-controlled Legislature's 11th-hour passage of legislation that loosened state oversight of property-insurance rate increases. Rather than handing insurers a blank check, as critics charge, he said the windstorm insurance legislation creates a climate conducive to keeping insurance companies in Florida and luring more of them into the state.
"I expect it will entice more carriers into the market," Mr. Rubio said. More carriers and the competition they would create, he added, are the best bet for lowering premiums.
That prediction may have had a better likelihood, said Rep. Gelber, had the Republican-led Legislature not rigged the market in 2002 with creation of the Citizens Property Insurance Corp., the state-run insurance company that has grown to become a windstorm insurer of about 800,000 coastal residents that has incurred about $2 billion in losses.
Market forces can't play out as long as the state takes responsibility for the highest risks and mandates that Citizens Property Insurance premiums stay above private-sector rates, Rep. Gelber said. "We removed the competition because we went into the market in a very dysfunctional way."
The property-insurance legislation introduced and passed on the next-to-the-last day of the 2006 session only worsened the crisis by turning the Florida Office of Insurance Regulation's rate oversight process upside down, Rep. Gelber said. "Previously, insurance companies had to prove the (new) rates weren't excessive," he said.
But under the new law, Rep. Gelber said, the burden falls on the Office of Insurance Regulation to prove new rates are excessive.
Before the 2006 session got under way, House Democrats proposed a revamp that would have done away with Citizens Property Insurance Corp. Under the Democratic proposal, the state would have covered the first $100,000 of windstorm damage on policies written by private carriers. The plan was for the state to set up a hurricane insurance fund and charge consumers risk-adjusted actuarial premiums based on the condition and vulnerability of their property.
Private carriers would have written the policies but would have been freed from covering the first $100,000 of damages. "Seventy percent of claims are under $100,000, so it's actually a big piece of the premium," Rep. Gelber said.
He theorized that the state's freedom from income taxes and the absence of a need to make a profit would enable it to charge premiums for the first $100,000 of windstorm damage below levels that private insurers could.
The Democrats, Rep. Gelber said, felt that the opportunity to provide other less risky - and more lucrative - parts of a homeowner's policy would motivate private carriers to administer policies backed in part by the hurricane insurance fund. Companies that didn't provide the "wraparound" coverage would find themselves losing policies to those willing to write the coverage, he said.
Much of the proposal presented by the Democrats grew out of discussions with property insurance professionals, Rep. Gelber said. "Insurance experts gave us comments that it makes no sense to have all the risks in one risk pool."
The Democratic proposal's key redeeming value, he said, is that it largely leaves the market to its own devices. "It doesn't unlevel the playing field."
The status quo, on the other hand, offers no incentives for insurers to get involved in hurricane coverage, Rep. Gelber said. Why should they "even get into windstorm when they can walk away from it and still charge obscene rates?" he said. "The state has taken out the natural risks the private sector should be taking."
The Republican House leadership's refusal to let the Democratic proposal have a committee hearing angered Mr. Gelber and other party members.
"We were extremely upset with Republicans," he said. "They refused to consider any other opinions that may have added some sanity to the market."
For his part, Rep. Rubio said, it's important that the state resist temptations to tamper with the market. Otherwise, it could find itself in an even worse crisis, he said.
Meanwhile, the property-insurance legislation his party pushed through the Legislature in 2006 will create more competition and ultimately lead to lower premiums, Mr. Rubio said. Of course, a big hurricane or two coming ashore in Florida would mean all bets are off, he added. "Right now, I'm mostly in the prayer mode in terms of hurricanes."