Lawmakers are delivering on their promise that insurance would be a major focus of this legislative session. A bill advanced in the Florida Senate recently that would dramatically change the way insurance companies institute rate hikes. The proposal would allow homeowners insurers to raise rates by a statewide average 15 percent above their current rates without prior approval of the Office of Insurance Regulation.
The scheme has been dubbed "flex-rating." In a nod to policyholders' tightened purse strings, the bill caps the rate increases at twice the statewide average for individual policyholders.
Currently, the OIR reviews and approves rate hikes annually. The agency will disapprove a rate if it's found to be excessive, inadequate or unfairly discriminatory. The insurance industry complains that it can take months to resolve a dispute with the OIR.
The bill would allow insurers to bypass the OIR's approval and head straight to market with the rate hike. The OIR would continue to review new rates to determine if they are discriminatory or inadequate.
The sponsor of the bill argues that this flex-rating system will improve consumer choice and, so, lead to a more competitive market. Proponents say that attracting more capital to Florida will help to lower rates.
Critics cast the bill as a "statewide experiment" that removes state regulation from an industry defined by profits. The change is unnecessary, they argue, especially considering that Florida's insurers haven't suffered significant losses in five years.
Whatever the free market pros and cons of the bill, the impact on Citizens Property Insurance Corp. could be a substantial barrier to the bill passing the full Senate. Citizens is limited to rate increases of 10 percent annually. If other homeowners insurance companies launch rates that outpace Citizens, more Floridians will move their coverage to Citizens -- and that's not a good or reasonable alternative, according to lawmakers from both sides of the aisle.
Insurers' flex-rate proposal will likely suffer a few Charlie horses in the next few weeks.
Source: Insurance Journal, "Florida Homeowners Insurers Seek 'Flex-Rating' Up to 15%," 03/24/11