Pros & Cons of the Consumer Choice Bill

As an independent property and casualty insurance agent in SWFL I'm constantly faced with the challenge of providing my clients with competitive homeowners insurance through financially sound carriers. Finding the perfect combination of low rates and high financial stability ratings can be difficult unless the location in question is built or retrofitted to the latest code and located 1,000 feet or more from the coast. Many carriers are hardening their guidelines by closing specific coastal zip codes or excluding wind coverage while others have decided to non-renew thousands of policies in an effort to reduce their exposure.

So why is this happening? One simple answer is that most carriers are not able to charge sufficient premiums to remain profitable. When asking permission from the state to increase their rates they are declined time and time again. I'm sure that those of you who are property owners think this is a positive decision with the consumer's best interest in mind. I only ask you to consider the following: first, any business that doesn't turn a profit won't be around for long; second, those carriers who continue to write policy after policy without charging the proper rate will be in serious trouble when, not if, Florida gets hit by a bad hurricane season.

How can this problem be solved before disaster strikes? One solution is the Consumer Choice Bill (HB 447) proposed by Senator Mike Bennett and Representative Bill Proctor. The purpose of the bill is to deregulate the Florida insurance industry which in turn will allow carriers to increase their rates to healthy levels. Before you make any judgments, let's look at the bill from both sides.

PROS: If the bill is passed, the best case scenario would be to have a few more years without hurricane activity. This will allow the existing Florida carriers to collect enough premiums to build up their surplus funds and offer their policy holders assurance that they will be able to pay claims after a catastrophic loss. In addition, new carriers will enter the market knowing that they can charge sufficient premiums to turn a profit. This competition will not only drive premiums down but it will also spread the exposure over more carriers. After a few years, Florida's top carriers (ie. Chubb, Fireman's Fund, Chartis and Pure to name a few) will have shed some policies allowing them to open their guidelines for new business in high risk coastal zip codes.

CONS: For the first few years, policy holders will experience significant rate increases until more carrier enter the market. In these difficult economic times, this will apply even more pressure to homeowners who are struggling to pay their bills. To top it off, there is no guarantee that insurance carriers will come flocking to our state to start writing new policies especially if the next bad hurricane season is right around the corner. As a result, more and more policy holders will be forced into the already distressed Citizens program just because their rates will be more affordable. Truth be told, Citizens rates are about 40% too low but that a topic for another blog!

Last year, the Consumer Choice Bill was vetoed by Governor Charlie Christ. Lawmakers will have another shot at pushing the bill through at the upcoming 2010 legislative session. It's my hope that it goes through. Keep in mind that I've been a Naples resident and property owner for over four years so I too will have to pay higher premiums. However, I'm also an insurance agent on the front lines of the industry and see many carriers either suffering financially or not willing to take on the additional risk of writing new policies. Let me know your thoughts about this bill. Are you for or against it and why?

Until next time...

Ron Lazarto (Client Advisor with Gulfshore Insurance, Inc.)