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Observations and musings on Jacksonville Politics

Wall Street Journal Slams Charlie Crist, Says FL Headed For Disaster

Tagging him “Hurricane Charlie,” the conservative Wall Street Journal slammed Florida Governor Charlie Crist this week.  The newspaper cites Crist’s recent veto of property insurance reform as one of the major reasons Crist wants to get out of Tallahassee “before the next hurricane hits.”  His veto, says the Journal, “all but guarantees a state disaster.”

The bill would have trimmed the cost of a state-run enterprise that insures homeowners against storm damage. The program has an $18 billion unfunded liability and has taxpayers on the line for tens of billions in property losses from the next major hurricane. The Republican legislature tried to reduce those future losses, but Mr. Crist sounded like Barney Frank rolling the dice on Fannie Mae in declaring there’s nothing to worry about.

By way of background, two years ago Mr. Crist gave a big gift to coastal property owners by converting the state of Florida into one of the world’s largest property insurers. The Citizens Property Insurance Corporation provides below market-rate insurance policies directly to homeowners. Meanwhile, the Florida Hurricane Catastrophe Fund (CAT) regulates how much private insurers can charge homeowners and requires companies to purchase low-cost reinsurance from the government. Mr. Crist didn’t invent these programs, but he vastly expanded their reach — to about one million policies today. He transformed Citizens from insurer of last to first resort.

Here’s the problem: This system isn’t even within a coastal mile of being actuarially sound. The state government acknowledges that in many high-storm risk areas the premiums are from 35% to 65% below what is needed to cover potential claims. That subsidy has made Mr. Crist popular with many coastal residents even as the state plays Russian roulette with the weather.

You can read the rest of the article here.

Filed under: Florida, Florida Politics, , , , ,

State Farm Continues Pullout After Crist Vetoes Bill

After Gov. Charlie Crist announced that he was vetoing House Bill  1171, widely known as the “State Farm Bill”, State Farm announced that they planned to continue with their plans—expressed on Tuesday—to exit the state’s home insurance market within the next two years.

Crist had previously expressed reservations over the bill, stating that it had “no provisions that [allowed] consumers to renew options and make a choice that best [fit] their needs.”  According to State Farm and their supporters; however, the bill would have allowed them to raise rates to more “realistic” levels to cover potential losses, without being subject to state regulation.

The Republican-controlled Legislature, which overwhelmingly supported the bill, is not pleased with Crist’s veto.  House Speaker Larry Cretul called Crist’s veto a “disappointment” and prominent leaders in the House and Senate are now hinting at efforts to override the Governor’s veto.

Filed under: Florida, Florida Politics, , , , ,

PB Post Calls for Veto of State Farm Bailout Bill

Governor Crist has already been sending signals that he may veto the State Farm bailout bill saying the bill “gives me some pause.”  Now the Palm Beach Post weighs in on the State Farm rate saga:

Letting insurance costs in Florida rise out of sight makes as much sense as letting house prices drop out of sight. But that’s what will happen unless Gov. Crist vetoes HB 1171.

Call it The State Farm Bailout Bill. Last year, the company – which, with 1 million policies, is Florida’s largest private insurer – asked for a 47 percent statewide increase just two years after getting a post-Wilma 52 percent increase. The Office of Insurance Regulation said no. A judge said no. So the company threatened to drop every policy in the state.

Was it a bluff? Who knows, but it worked on the Legislature. HB 1171 would allow the state’s largest private insurers to raise rates for property coverage as much as they want. Supporters claim that this free-market approach would stimulate competition and, over time, actually drive down rates and cause companies to take policies out of state-run Citizens.

The free market, though, got Florida into this problem. Companies wanted to dump riskier homeowner policies and keep the safe ones. That’s how Citizens got its 1 million policies. Private companies continue to shed policies in other coastal states. There’s no guarantee that this bill would increase competition. The only guarantee is that large insurers would make more money.

Sen. Ted Deutch, D-Boca Raton, defended his vote for the bill by saying that “this is just a short-term thing.” Sen. Dave Aronberg, D-Greenacres, mounted the same weak defense for his yes vote, saying that the Banking and Insurance Committee chairman had promised a staff review after a year. But the Senate rejected an amendment by Sen. Deutch for a review after two years by the chief financial officer. The Senate rejected an amendment that companies keep all existing policies.

Senate President Jeff Atwater, R-North Palm Beach, voted against HB 1171. He is rumored to be a candidate for chief financial officer in 2010. So he saw HB 1171 as a potential political liability or a bad deal for consumers or both. Gov. Crist has his own political plans for 2010. Similarly, for reasons that make sense for the state and for him, he should veto this bill.

Filed under: Florida, Florida Legislature, Florida Politics, , ,

Legislature Buddies Up to Large Insurers

One of our area representatives, Bill Proctor, is sponsoring the House version of a bill that would let large insurers such as State Farm sell a new form of residential insurance largely free from regulation.  Bad idea, imo.  The House bill is up for hearing today. 

Here’s the Sarasota Herald Tribune’s take on it.  And click here for the Orlando Sentinel’s article.

Filed under: Florida, Florida Legislature, , ,

The Other Side of State Farm

Since my esteemed colleague and fellow blogger is posting one side of the State Farm issue, I’ll show you the other.  First, let’s look at State Farm’s Katrina shenanigans in Mississippi.  The State’s Attorney General went after them there.

State Farm agrees to pay up for Katrina in Mississippi

January 23, 2007

State Farm has agreed to pay thousands of Mississippi homeowners hit by Hurricane Katrina likely hundreds of millions of dollars in a landmark settlement that’s expected to reverberate across the storm-ravaged Gulf Coast.

The company agreed to a deal under which it will reopen thousands of homeowners’ claims and is likely to pay as much as $500 million, Mississippi Attorney General Jim Hood announced Tuesday. There’s no cap on the payout. The insurer will have to pay at least $50 million under the deal negotiated with the Scruggs law firm, which represents the majority of Mississippi homeowners who sued State Farm.

In a related development, State Farm will settle more than 600 individual Mississippi homeowners’ Katrina claims for roughly $80 million, according to a person with direct knowledge of the negotiations who didn’t want to be named because the settlement is confidential.

The settlement applies only to Mississippi homeowners — not to the thousands in Louisiana who are suing State Farm and other insurers, arguing that wind and rain ravaged their homes. Homeowners’ policies cover wind and rain damage, but not flood damage, which is covered by federal flood insurance.

Homeowners could begin receiving insurance checks within a few weeks, after the class-action settlement is approved, as expected, by U.S. District Court Judge L.T. Senter Jr. As part of the agreement with State Farm in Mississippi, Hood agreed to drop a criminal probe against the insurer related to its claims-handling process.

[…]

Then there’s this unbelievable announcement not even two months later:

State Farm CEO Gets 82% Pay Raise

March 7, 2007

State Farm Insurance’s chairman and CEO received an 82 percent raise after the company posted a record profit last year, a statement from the Bloomington-Ill.-based insurer said this week.

Chairman and Chief Executive Officer Ed Rust Jr. got a $5.26 million raise. He earned $11.66 million in 2006 with a base salary of $1.77 million and results-based bonus of $9.89 million, the statement said. Rust made $6.4 million in 2005 and $5.5 million in 2004.

The absence of a major catastrophe helped the insurer generate a record $5.32 billion profit last year, compared to $3.24 billion in 2005 when Hurricane Katrina hit the Mississippi Gulf Coast, release said.

Did you catch that?  State Farm made a $3.24 billion profit and their CEO made $6.4 million as they were wrongfully denying Hurricane Katrina claims and being criminally investigated for the handling of those claims.

I’ve long since dropped all of my policies with State Farm. 

So I, and many other former State Farm policy holders say:  You go, Governor.  Good riddance to bad rubbish and don’t let the door hit you on the way out, State Farm. 

Who needs insurance from a company that is investigated criminally and sued by homeowners to get legitimate hurricane claims paid?

Filed under: Florida, Florida Legislature,

Former Rep Cites State Farm in Calling Crist a “Risky Bet”

From the Palm Beach Post:

Former state Rep. Don Brown, R-Defuniak Springs, says in a letter in today’s Palm Beach Post that State Farm pulling out of Florida is a sign that that Gov. Charlie Crist’s property insurance plans are “unraveling.”

Those who know the world of finance say that State Farm has the money to pay claims, at least for now. But having been denied a much-needed rate increase, State Farm can’t guarantee that will be the case much longer.

So, going into this hurricane season, are you betting on the governor or State Farm to be able to bring cash to the disaster? If you’re betting on the governor, good luck. You may need a lot of it.

Filed under: Florida, Florida Politics, , , ,

State Farm Agent Takes on Senator

Interesting exchange from the Palm Beach Post between a State Farm agent and the president of the Florida Senate.

State Farm agent Bill Knight peppered Atwater, who has been on the warpath against property insurers for what he believes are excessive rates, with questions about the state CAT fund and other insurance questions, often interrupting the president and ultimately shutting down the session.

State Farm recently announced it was leaving the state and canceling its 1.2 million clients over the next two years after state insurance officials turned down its request for a 47 percent rate hike.

The state’s catastrophe fund has about $8 billion in cash on hand, but needs to cover about $28 billion in losses if a major storm occurs.

“We are heading out and there’s no turning around at this point. Where are the dollars going to come from if we were to have a Category 4 or 5 storm hitting Tampa or Pinellas County or anyone else in the state?” Knight wanted to know.

“We would be in a world of hurt if this occurred,” Atwater, R-North Palm Beach, said.

But that didn’t stop Knight.

“How are you going to get private companies to come into the state? We are being basically chased out of the state. I’ve got a real problem with it and I’d like to hear your solution,” he persisted.

“Well, probably, let me just say this. I think you have a valid point. My hope would be that as you see the state and our policies loosen the restrictions so that there is a greater sense of market rate being provided by these corporations in Florida that private players will validate that those things are working and they will come here,” Atwater offered.

Filed under: Florida, , , , ,

Wall Street Journal Slams Crist

Gov. Charlie Crist may be riding high with a 73% approval rating, but the conservative Wall Street Journal is less than impressed. The Journal refers to Crist as Florida’s “Unnatural Disaster”—specifically, his voter-pleasing but financially unstable insurance plan which basically puts taxpayers, not insurance companies, on the hook for any future natural disasters.

The Journal points out the obvious—how can an insurance company with $3.4 billion in net assets possibly handle more than $400 billion in total exposure? It’s a question we should all be asking.

Read the entire article here.

Filed under: Florida, Florida Politics, , , , ,

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