CEI Suggests Questions for Florida Insurance Commissioner
Tallahassee, Florida, August 25, 2009—Scholars
at the Competitive Enterprise Institute, a free market think tank, today urged Florida
Insurance Commissioner Kevin McCarty to accept Rep. Scott Plakon’s invitation
to appear before the House Insurance, Business, and Financial Affairs Policy
are a lot of very serious unanswered questions,” says Christian Cámara, director
of CEI’s Florida Insurance Project. “And
Commissioner McCarty needs to answer them.” Cámara, along with CEI Center
for Risk, Regulation, and Markets director Eli Lehrer suggests that members of
the committee ask McCarty the following questions:
1. What percentage of the capital that has
entered the state backs the ordinary homeowners’ insurance policies – HO-3 and
HO-8 policies – that most individuals want and most banks demand? How did you
arrive at this number? Do you think this amount is sufficient? How does it compare to the capital provided
by firms like State Farm that have exited the state?
2. In his statement vetoing HB 1171, Gov.
Charlie Charlie Crist stated that a major part of his rationale for stopping
the enactment of the bipartisan bill was that Florida “has added new property insurance
writers and a significant amount of new capital since 2006”. Since most of the
capital that has entered the state does not back policies writing ordinary
homeowners’ insurance policies, do you believe that the governor had complete
information when issuing his veto?
3. Many of the new firms entering the state
are rated only by Demotech, which is not an SEC-designated Nationally
Recognized Statistical Rating Organization (NRSRO). By when do you believe that
an NRSRO will grant satisfactory ratings to any of these new firms? On what do
you base this belief?
4. The handful of new firms writing HO-3 and
HO-8 policies rely almost entirely on the Florida Hurricane Catastrophe Fund
and private reinsurance, in order to diversify their risk portfolios. By all
accounts, reinsurance is the single most expensive type of capital available to
insurers. This suggests that, in order to remain financially stable, these
companies will have to charge rates well above those charged by more
diversified carriers. Nonetheless, many claim to charge lower rates. Do you
believe that these firms will remain solvent? Why or why not?
5. Several of the new firms entering the Florida market to write
HO-3 and HO-8 policies only write them on very high value homes costing $1
million or more. As of July, the average home in Florida sold for less than $200,000. How
does the coverage these firms provide benefit typical Floridians?
6. Your department does not regulate the
rates or forms of excess and surplus lines policies. As the great bulk of the
capital entering the state goes to back only E&S policies, it appears that
insurers are only willing to bring in new capital to write policies that your
department largely leaves alone. Does this suggest that you should somehow
change the manner in which your department carries out rate and form oversight?
Why or why not?
7. At least two firms that have entered the
state still have not written any policies. Do you have any evidence that they
intend to write policies? If so, and when do you expect them to do so? If you
do not have such evidence, why does it make sense to count these firms amongst
new market entrants?
8. If any of the new firms collapse, the
Florida Insurance Guarantee Association will have to pay a large portion of
their claims. As FIGA has no assets of its own, it will have to charge
assessments (taxes) to all insurance policy holders in the state in order to pay
these claims. Has your department estimated the likely costs of these
assessments if any or all of the new entrants were to collapse? Also, has your
department produced estimates how much these potential assessments would add to
a typical Floridian’s homeowners’ insurance bill? Why or why not?
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