Insurance report card: E isn’t for ‘excellent’

As the Florida Legislature works on bills to change the insurance market in the state, a state-mandated homeowners insurance report card dies a quiet death. Lawmakers approved the report card in 2007 to give Florida homeowners a way to compare insurers as well as to move insurers to improve their customer service.

Companies were graded on timely payment of claims and customer complaints, on a scale of A to E, with E being the worst. (The F wasn’t used, because lawmakers said that a company that failed wouldn’t be in business.)

The grading system was a major source of contention for years — so much so that the first report was just completed in December — with a bell-curve system finally decided on. But critics say the bell-curve means that some insurers have to be at the bottom, and that’s not fair.

Not just the grading system, but the entire concept of a report card was rigorously opposed for four years. Industry lobbyists nixed proposals and even challenged the rating system’s legality. Eventually, a formula was decided on, using data already collected by other state agencies.

Companies receiving low grades — including Citizens; the state-run insurer received an E — complained that the ratings were wrong or skewed by the types of coverage they offer or the geographic location of their policyholders. A representative from Citizens, for example, said the company’s size and disproportionate share of high-risk policies would naturally lead to a low grade.

Another issue with the grades is that they are based on 2004 and 2005 data. Insurers say the results are meaningless because so much time has passed. Not to mention that 2005 was a record-setting year for hurricane claims.

Continued in our next post.

Source: Herald-Tribune (Sarasota, Florida), “State insurers graded on how they handle claims,” Paige St. John, 03/28/11

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