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Date of Issue: February 22, 2007

Insurance industry reacts, Auto-Owners halts new business

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The state's Office of Insurance Regulation has retained J. Robert Hunter, a former federal insurance administrator and Texas Insurance Commissioner, to analyze Florida insurance rates and figure out possible savings for policyholders.
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Holmes Beach insurance agent Mark Mixon says he received an e-mail message last week from Auto-Owners Insurance saying the company is no longer accepting new business in Florida because of the state insurance law. Islander Photo: Molly McCartney

A new firestorm has erupted in the war between the insurance industry and state leadership.

The latest episode was triggered by last week's announcement that J. Robert Hunter - insurance director for the Consumer Federation of America - has been retained to help the state figure out the percentage of savings that policyholders should get from the new insurance law.

State officials describe Hunter as a talented consumer expert who will help them continue their pro-consumer approach to insurance regulation.

Insurance leaders say Hunter is a "crusader" who will try to further weaken their industry. News of Hunter's appointment set off a "bonfire inferno reaction" among the state's insurance agents.

This clash comes as the Florida Insurance Council, the state's largest insurance lobby, went to court to try to overturn the state's rate freeze.

An insurance lobby spokesman said the freeze, imposed Jan. 30 by the Florida Cabinet, "disrupts insurer operations and creates unnecessary havoc and confusion for insurers and policyholders." The lobby group has asked the First District Court of Appeal in Tallahassee for an immediate stay order for the freeze.

Gov. Charlie Crist told reporters in Tallahassee he wasn't surprised by the lobby's court challenge.

"I would expect them to try to come in every door, every opening, every opportunity to do everything that they possibly can to advantage their bottom line and not the customer's best interest," the governor said.

The governor's remarks are in keeping with his aggressive effort to push through consumer-friendly insurance regulation during the special session that met in January. But the Crist approach - which continues to be carried out by the Office of Insurance Regulation and the Florida Cabinet - is a reversal of the pro-industry attitudes that prevailed under former Gov. Jeb Bush and the Florida Legislatures of the recent past.

In this new pro-consumer environment that has dominated the Tallahassee scene since Crist took office in early January, the insurance industry has had an unusually hard time making its case.

And now, some insurance companies are starting to fight back.

In a detailed e-mail message sent earlier this month to its agents, Auto-Owners Insurance Group announced that two of its three companies would halt new business in Florida because of the legislation passed during the special session in January.

Neither Auto-Owners Insurance Company or Owners Insurance Company will accept any new business, effectively immediately, the e-mail said. The group's third company, doing business as Southern-Owners Insurance Company, will accept new business "subject to its underwriting rules, guidelines and current restrictions, particularly as it relates to property exposures."

The senior officers of the Auto-Owners group said they "must exercise our best judgment in protecting the financial security for all Auto-Owners insured, agents and associates in our operating states."

The e-mail said that the Auto-Owners group was "disappointed and very concerned with the new law that was passed in the Special Session, and signed by the governor, as well as Emergency Rule 07-01 (the rate freeze)."

 Holmes Beach insurance agent Mark Mixon, of Jim Mixon Insurance Inc., described the Auto-Owners decision as part of the ongoing power struggle in the Florida insurance market.

"The state pushes the industry with the new legislation and the industry pushes back against the state," he said.

One immediate impact on Mixon is his advertising. In the past, he has been a partner with Auto-Owners Insurance in his print advertisements in The Islander and other publications. Since Auto-Owners is no longer accepting new business, the company has also withdrawn its co-op advertising program.

A Tallahassee insurance executive described Auto-Owners as a "fine company … that wants to stay here but under the current circumstances they are finding it more and more difficult to do business here."


Hunter started here Valentine's Day

Hunter, who arrived in Tallahassee on Valentine's Day to begin his new job, is a member of the American Academy of Actuaries and served as a federal insurance administrator under Presidents Ford and Carter and as Texas Insurance Commissioner in the early 1990s.

A resident of Arlington, Va., Hunter is being paid $55,000 to help Florida calculate property insurance rate reductions that should be possible for insurers buying state reinsurance that is cheaper than the reinsurance on the private market.

Deadline for Hunter's report is March 15.

Insurance Commissioner Kevin McCarty said he is pleased to recruit someone of Hunter's stature. "The body of work Bob has put together over the years is legendary," McCarty said. "He is truly one of the great minds on issues surrounding the insurance industry, and I am grateful we were able to attract him to Florida to take on this very important project."

But the insurance industry has another opinion on Hunter.

"The reaction out there is just disbelief," said Jeff Grady, president of the Florida Association of Independent Agents, a professional group that represents nearly 1,500 independent agents.

Grady said he has received "volumes of calls" from agents about the Hunter announcement. A typical reaction, he said, was "This can't be real." And, "You have to be kidding."

The feeling among agents, according to Grady, is that the state's approach "is not balanced." He described Hunter as a "guy whose occupation is to crusade against the insurance industry…hiring him for this job is like putting the president of State Farm in that position."

Grady also questioned the need for the state to retain anyone to help interpret savings from the new law. "There has never been a team of experts swoop into town and been paid $55,000 for doing something that the Office of Insurance Regulation (OIR) routinely has shown that it has the capability to do," he said.

Commissioner McCarty said OIR needs Hunter to help "accurately price the rate reductions."

OIR has retained Paul Walther, a reinsurance specialist and consultant, to work with Hunter on this project. The state contract provides for a fee of up to $100,000 for Walther, who is based in Lake Mary in central Florida.

Hunter told The Islander in a telephone interview that his assignment is to do an actuarial analysis of the difference between what insurers now pay for reinsurance and what they will pay when they buy it from the Florida Hurricane Catastrophe Fund, commonly known as the Cat Fund.

He said his analysis will consist of a sample of the 250 property insurance companies operating in Florida.

The result of the sampling will be the percentage reduction that the new legislation should yield. Once that number is established, each residential property insurer will have to file new reduced rates for policies written or renewed on or after June 1.

Hunter said that he has reviewed Florida's current property insurance rates and found them to be "grossly excessive." He predicted that there will be "significant savings" for policyholders once the changes required by the law are in place.

"No other state has done anything like this on property insurance," Hunter said.

He also said that the private reinsurance companies "are very upset that other states are starting to look at Florida's new law."


Pay premiums on time

Mixon has an important message for all policyholders as the insurance crisis continues for many property owners.

"Pay your premium on time," he said.

Failing to get your money to the insurance company when it is due can result in loss of coverage and the need to find a new insurer and possibly pay even higher rates, he said.

If the policy is due on the first of the month, it is essential to make the payment or get it postmarked on or before the first, he said.

"Otherwise you can cry, you can call the governor, you can do whatever you want, and it will do no good, because the company has the grounds to drop you when you are late," he said.

And in a time when companies are seeking ways to reduce their exposure by eliminating policyholders, especially those in high-risk areas like Anna Maria Island, you can best protect yourself by paying premiums when they are due, he said.

"It is a mistake to wait," he said.