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Should out-of-state carriers get more access to insure Floridians?

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Posted: 02/12/2012

By Charles Elmore Palm Beach Post Staff Writer

One lawmaker calls it "dangerous." Another warns it will turn Florida's insurance landscape into the "Wild West."

The state House has voted 66-48 to make it easier for less-regulated companies called "surplus-lines" carriers to take over policies from the state's insurer of last resort, Citizens. Now it's up to the Senate.

The companies, which have given hundreds of thousands of dollars in political contributions in Florida, say they are ready to bring fresh choices to consumers and more competition to Citizens. The state's largest carrier has 1.5 million policies, including 140,000 in Palm Beach County.

Unlike regular insurers, though, surplus-lines companies can raise rates at will, are not subject to prompt payment rules and are not part of a state safety net to pay claims if they fail.

Betty Grove, 82, watches with unease from her front yard east of Interstate 95 in West Palm Beach. Her bill from Citizens keeps going up, but she's not sure whose interests are most important to legislators now.

"We need help, but I guess they're working for the insurance companies," she said.

Bill supporters cast it instead as a step in the right direction toward competition, with an eye toward shrinking Citizens and reducing the risk of potential assessments for its customers and others from a very severe storm.

On the House floor, Rep. Bill Hager, R-Boca Raton, said the bill contains ample protections, even if the companies are not part of the Florida Insurance Guaranty Association, which covers claims against insolvent carriers. Surplus-lines companies "are recognized in the main as stable, good-faith operators," he said.

Among other requirements, companies would have to show they have at least $50 million in surplus - though not necessarily in an account in Florida. A portion of some premiums from Citizens customers who are switching would go to a state account, though there is no minimum dollar figure required.

An important point is that customers would have an option to stay with Citizens, said sponsor Rep. Jim Boyd, R-Bradenton, an insurance agent. "This gives consumers a choice," he said.

But Sen. Mike Fasano, R-New Port Richey, calls the bill "dangerous." And detractors in the House warn that homeowners may have no idea they're headed for a "Wild West" environment with little recourse against rate hikes or refusals to pay claims.

Unfair marketing?

If the bill passes, some Citizens customers may get letters saying another company is ready to take over their coverage. Legislators argued on the House floor about whether the program amounts to "negative-option" marketing, because the burden is on the customer to take action to remain with Citizens. If the homeowner tosses out the letter, isn't sure what it means or just does nothing, the policy automatically switches to the surplus-lines firm.

Surplus-lines insurers would be free to charge what they like, but say they would have an incentive to offer competitive rates. Otherwise, most people wouldn't switch to or stay with them. Consumers should be reminded that Citizens customers could be hit with assessments from 15 percent to 45 percent if really bad storms exhaust reserves, they say.

Lobbyists say they did not write the bill.

"We answered questions," said Tim Meenan, an attorney and lobbyist for California-based insurer GeoVera, which has talked about taking perhaps 30,000 to 50,000 policies out of Citizens. "We gave suggestions."

As for contributions, "every business in Florida participates in the political process," he said.

And so do some outside Florida, contribution records reviewed by The Palm Beach Post show.

GeoVera has contributed more than $43,000 in the 2012 election cycle to the state GOP and such key legislators as banking and insurance committee member Sen. Joe Negron, R-Stuart.

Surplus-lines companies usually serve niches such as shopping centers or certain kinds of luxury homes. GeoVera, which specializes in services such as earthquake insurance in other parts of the country, says it already has about 30,000 policies in Florida.

Policies not widespread

Still, surplus-lines policies usually aren't widely marketed to ordinary homeowners. Palm Beach County leads the state with $99 million in property insured by surplus-lines carriers under standard homeowner policies called HO1 - and that's all from just 10 homes, records show. Miami-Dade is second with six homes insured for $77 million.

About 130 surplus-lines insurers cover at least one commercial property and 33 write residential policies, according to the Florida Surplus Lines Service Office.

Lloyd's Underwriters covers about 84,000 commercial and 42,000 residential properties in the state. GeoVera is second in residential properties.

New Jersey-based Chubb, which writes a smaller number of residential policies, has pitched in $60,000 to lawmakers including state Sen. Liz Benacquisto, R-Fort Myers.

Not all companies potentially eligible to

take over Citizens policies say they have any plans to do so.

Zurich American, from offices in Illinois and Washington, D.C., has given more than $80,000 to recipients including Palm Beach County delegation chair Sen. Ellyn Bogdanoff, R-Fort Lauderdale, state records show. The company says that largely reflects political action committee money not necessarily spent in Florida.

"Like many companies, Zurich has a political action committee that contributes to elected officials throughout the nation," company spokesman Steve McKay said. "None of these contributions are made to influence action on any specific piece of legislation. In the U.S., Zurich is a commercial insurer, and as such has no interest in writing personal homeowner policies."

Tracking the money

In the 2010 election cycle, surplus-lines insurers from such places as Pennsylvania, Connecticut, Illinois and Minnesota gave more than $350,000 to state political organizations and legislators. Those numbers come from research by The Post with the aid of followthemoney.org and the nonpartisan, nonprofit National Institute on Money in State Politics in Helena, Mont.

Bogdanoff, for example, received in the 2010 cycle contributions from several corporations whose affiliates appear on a list of eligible Florida surplus-lines insurers, including GeoVera, Chubb, Ace American, Riverstone and Zurich American, records show.

Citing the risk of assessments and taxpayer liability, Gov. Rick Scott and other state leaders have pushed Citizens to reduce coverage, raise rates and nudge people to private insurers.

Citizens customers like Grove have a hard time seeing how all this is helping them.

She has lived east of I-95 in West Palm Beach since 1974, when a home like hers could be purchased for a little more than $40,000. A widow, she relies on Social Security to make ends meet. She never asked to be a Citizens customer but wound up there after private insurers bailed out of her ZIP code.

Her bill, already about $4,000 a year, recently rose about $500 because Citizens said she lost certain storm discounts after an inspection.

"Maybe we need to get on a bus and go to Tallahassee," Grove said. "When you're old and poor, you don't need them to raise the premiums."

Rep. Mark Pafford, D-West Palm Beach, hears similar laments from constituents often. He also keeps hearing that market competition would improve the picture, but every passing year with no major hurricane seems to bring coverage reductions and higher premiums.

"Unfortunately consumers are paying a high price for products that are getting worse, not better," he said.

The House debate touched on the issue of whether agents would have incentives to steer customers to surplus-lines carriers. Commissions could be higher for policies that cost more. Meanwhile, there's been a separate push to reduce commissions for Citizens policies.

Agents say customers who have few or no options besides Citizens may well welcome new choices, though some expect tough questions about consumer protections with surplus-lines firms.

"I will need to see what the agents' requirements are to encourage the client to go with a surplus-lines carrier," said Terese Drouin, personal lines manager for Atlantic Pacific Insurance in Palm Beach Gardens. "Without the guaranty fund, who knows how long, or even if, a loss will be paid per the policy contract?"