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Date of Issue: March 01, 2007

Insurance: State softens rate freeze, allows cancellation

Caption: John Laurie, Bradenton insurance executive, says the "unintended consequences" of the state rate freeze have been a "nightmare" for agents and others. Islander Photo: Molly McCartney

Melodie Moss thought for a while that the state's tough new rate freeze protected her against the loss of her homeowner's insurance policy.

But last week the state modified its rule in response to a legal challenge from the insurance industry. The result of that deal leaves Moss and other policyholders like her vulnerable to cancellation or nonrenewal.

State Rep. Bill Galvano, who represents Anna Maria Island and western Manatee, described the change in the state freeze order as "unfortunate."

Galvano and Moss spoke at a recent forum sponsored on the Island by the Kiwanis Club and The Islander when she brought her situation to light and Galvano used Moss's plight as an example for others of what can happen.

Moss, who says she isn't yet sure how this is going to turn out for her, says her situation is now exacerbated by the "un-ruling."

She received a notice in December from Liberty Mutual saying that her policy would not be renewed when it ends March 31. But then the Florida Cabinet issued a rate freeze order at the urging of Gov. Charlie Crist. Officials said they wanted to keep insurance companies from canceling or dropping policies - non-renewals - before new state insurance legislation could be implemented.

Under the terms of the freeze order announced Jan. 30 and implemented the next day, no homeowner insurance policy could be canceled or non-renewed on or after that date, regardless of when the policyholder got the notice of non-renewal or cancellation.

Crist urged the order, saying he feared the industry would try and take advantage of policyholders unless there was a freeze on rates, cancellations and nonrenewals.

Moss was thrilled that the freeze might help her.

But she was troubled by some practical questions. At the Holmes Beach meeting, for example, Moss asked Galvano about the terms of the renewal she would be able to get March 31 when her existing coverage runs out.

"Am I renewed for the year or just a few months?" she wanted to now.

Galvano didn't try to answer that question. Instead, he said the implementation of the new insurance law "will change the entire environment of insurance so your insurer will have more incentive to stay in Florida and change the rates."

A few days later, the Florida Insurance Council, the state's largest insurance lobby, went to court and asked for an immediate stay of the state's freeze order. A spokesman for the lobby group said the order "creates unnecessary havoc and confusion for insurers and policyholders."

On Feb. 19, the state backed down. Insurance Commissioner Kevin McCarty issued a new interpretation of the freeze rule.

Galvano explained the commissioner's interpretation this way: The modified rule is not retroactive and does not cover policyholders who received cancellation or nonrenewal notices prior to the passage of the emergency rule on Jan. 31.

"The Office of Insurance Regulation modified the freeze rule in order to have the law suit [filed by the insurance lobby group] dropped," he said. "So if the notice of cancellation or nonrenewal was proper, and given prior to the enactment of the rule, then there is no retroactive element. That is unfortunate, because I think the governor would have liked to have seen that."

All this turmoil and uncertainty has left Moss confused and concerned about the state of her homeowner's policy and the outlook for future coverage.

"Every week it changes," she said, and the thing is that no one gives her straight answers. "Every time I call them, I get a different person," she said.

And then last week - on the same day that the state announced its modified freeze order - the mystery deepened when she opened her mail and found that Liberty Mutual had sent her a renewal notice.

"I don't know what that means," Moss said. "Who can say if this is going to stick? Who can say if I have coverage or not after March 31?

If for some reason she is able to retain her Liberty Mutual insurance, it is going to cost twice as much as last year, she said, because the renewal notice calls for a $4,000 premium, compared to the $2,000 she paid last year.

"I may have a policy," she said. "And I may be out of luck. I don't know."


Insurance agents struggle

Moss isn't the only one confused by what is happening in the insurance market.

Insurance executive John Laurie characterized the problems that he and other agents face these days as a "nightmare." He said agents asked the state insurance office and the governor's office for more information about the freeze "because there is so much confusion … and not everything was answered."

Laurie, who is vice president of BB&T Insurance Services in Bradenton, served as a technical advisor to the blue-ribbon task force on insurance created last year by then-Gov. Jeb Bush.

The uncertainty over the freeze order is having an impact on company billing procedures, Laurie said.

"No one has done any billings for policyholders who had their coverage expire but now are under orders to have it extended," he said. As a result "there will be back billing, meaning the customer will get a back bill [for interim coverage] and a new bill for the new policy."

Laurie described this as one of the "unintended consequences" of the freeze order.

"It is a mess," he said. "I understand that Gov. Crist was trying to do a good job and stop the bleeding and make it so the companies give the new legislation time to work, but there are so many unintended consequences."

Laurie said the freeze order prohibiting cancellations and nonrenewals was so restrictive that several insurance companies stopped writing new business, at least temporarily.

One of those was Auto-Owners Insurance.

Laurie said that the insurance industry is also looking at the expanded state role in the insurance market and the risk factor that represents if a major hurricane hits Florida.

"How do we pay for these potential claims? This has to be evaluated. You will hear people say we will bond it. But we don't have that current bonding capacity, and we need to develop that. We need to develop the fund and the mechanism to pay into it.

"And people are not going to want to hear this, but we basically said that we want to provide you with rate relief now because you are hurting, and there is no question we needed to do that.

"But there is a bigger bill coming, after the storm hits. So we are just gambling right now.

Laurie said a one-cent sales tax would be the best way to build a fund that would pay claims in the event of major storm damages. The fund would provide backup for claims filed with Citizens Property Insurance Corp., the state's insurer, and the Hurricane Catastrophe Insurance Fund, which provides lower-cost reinsurance to insurers as a way to knock down rates to policyholders.

"The question is when does that storm come," Laurie said. "If it comes 20 years from now, we are home free. If it comes in the next three years, we have a big problem. Because we have nothing now."