Florida Gov. Charles Crist has signed legislation that puts theonus on insurance companies to justify premium increases, while atthe same time freezes rates for the state's property insurer oflast resort, which critics charge is woefully undercapitalized.

While signing the bill, the governor also vetoed a provisionthat would have provided $250 million to continue a program thatprovides incentives for small insurers willing to come to the stateand write some business now placed with the state-backed CitizensProperty Insurance Corp.

The new law tightens oversight over insurers and bars them fromincreasing rates on homeowners' policies without prior stateapproval. It abolishes arbitration panels, which had the authorityto approve rate increases denied by the Office of InsuranceRegulation, and says insurers can only use hurricane models thathave been approved by the Florida Commission on Hurricane LossProjection Methodology.

The new law doubles the maximum fines for insurers caughtviolating state regulations. It also requires insurers to notifyhomeowners' policyholders 180 days before dropping them, and to payundisputed claims within 90 days of deciding the amount of thepayment.

In addition to freezing rates for Citizens until January 2010,the law increases from $1 million to $2 million the maximum valueof homes that Citizens can insure. The law also sets the stage forassessments against all auto and homeowners insurance policyholdersif storm losses exceed the state's catastrophe insurance funds.

Many critics have charged the state's Citizens disaster fund isin no position to pay claims in the event of a catastrophe andcould not borrow the money to do so.

The insurance industry had lobbied heavily against the measure,to no avail.

David Sampson, president and chief executive officer of theProperty Casualty Insurers Association of America, called therevisions to the rate-filing process particularly onerous.“Building a more stable environment in Florida is critical, andmeasures that are overly restrictive limit the ability of insurersto compete in the marketplace and serve the consumers of Florida,”he said.

“We continue to urge the state to take actions that will helpefforts to attract and retain private insurers to write morepolicies in Florida,” he added.

An American Insurance Association staff official voicedparticular concern over the provision freezing rates forCitizens.

“This just broadens the exposure of Citizens, and ultimately ofall Floridians if a major hurricane strikes and Citizens does nothave sufficient claims-paying resources to meet its obligations,”said Julie Pulliam, a staff official for the AIA's Southeastregion.

“This bill is not good for the insurance industry, and webelieve it is not good for Florida consumers, either,” sheadded.

But the industry does support one provision of the law, creatinga blue-ribbon task force to develop a plan to return Citizens tobeing a true insurer of last resort, and to recommend measures toencourage private insurers to assume policies currently inCitizens.

Mr. Sampson said it is important for the state to reassess thecurrent system and “take the risk burden off of Florida taxpayersand place it back in the capital markets.”

In his veto statement, Gov. Crist said he opposed spending anadditional $250 million in funds from Citizens to help move risksout of the program–a provision supported by the insuranceindustry.

“The citizens of Florida are already feeling the heavy weight ofproperty insurance and property tax burdens. I do not supportrisking an additional financial hardship,” Gov. Crist said.

However, Mr. Sampson said the funds would help promote a returnto a competitive marketplace, and hoped the legislature would comeup with appropriate funding in 2009.

Meanwhile, Florida Insurance Commissioner Kevin McCarty affirmeda decision of an administrative law judge to deny HartfordInsurance Group's request for an increase in homeowners insurancerates.