Ever since Florida Gov. Charles Crist signed legislation early this year to vastly expand the public catastrophe funds capacity, while allowing primary insurers to buy discount reinsurance from the state, Tallahassee has been on the industry’s case, pushing for anticipated rate reductions they believe is due to homeowners. The fight is getting ugly, and it could get a lot worse before long, with vague charges of collusion in the air.

The law’s champion, Republican Gov. Crist, hammered away at the industry over the summer, accusing insurers of breaking their promise to cut homeowners insurance rates to Florida residents by at least 24 percent to reflect their savings in reinsurance costs.

Carriers were quick to lash right back, insisting that a 24 percent cut was never promised by the industry, and instead was nothing more than an estimate from state officials and regulators wearing rose-colored glasses–indeed, more of a fantasy of the best-case scenario, rather than an actuarially-sound prediction.

There has been much posturing back and forth since then, with various requests for stiff rate hikes rejected, but more recently, as NU reported on Oct. 2, “State Farm has agreed to reduce homeowner rates 9 percent, as well as pay almost $23.3 million in customer refunds and $1.5 million in legal costs to the state of Florida.”

More ominously, however, the Florida Office of Insurance Regulation and state attorney general’s office said State Farm agreed to cooperate on further investigations related to potential collusion between insurers, trade associations and rating organizations.

The industry’s reaction to the implications of this latest suggestion of not just bad faith, but outright wrongdoing, really sparked an angry reaction.

Sam Miller, executive vice president of the Florida Insurance Council, told NU in an article last week that an ongoing probe of potential collusion over rates charged by Florida property insurers is the result of a warlike political atmosphere pitting state public officials against carriers.

State Farm insists that whatever Florida officials say, the company is not involved in anything like that and referred questions to the OIR. But then who is the state government targeting in this probe, and what does State Farm know about it? Or is the state just off on a fishing expedition, trying to intimidate more carriers into settling by offering refunds and lower rates?

As reported by NU’s Dan Hays, Mr. Miller does not believer there has been any collusion on the part of his industry. The companies have always been very aware what they can and cant do, he said, adding that its ridiculous to think insurers get together in a room and conspire on rates. We cant even get them in a room to agree on legislation.

He went on to state unequivocally that there is no collusion. This is an incredibly political, warlike situation, and its about rate struggles between public policy officials and insurers.

Mr. Miller said some 300 companies had made rate filings with the OIR, and that most have been trashed because we cant magically produce the rate savings they want.

Is this a simple matter of scapegoating because Florida’s controversial legislative “solution” is failing to deliver the promised rate cuts? Or are insurers reaping the benefits of cheaper reinsurance, but pocketing additional profits, rather than passing along savings, at the expense of policyholders?

I tend to agree with Mr. Miller. Getting insurers to agree on any substantial matter is like herding cats. Their trade associations in Washington can’t even convince the industry to agree on whether the federal government should be involved with regulating the industry, and if so, then how? The idea that insurers are secretly fixing prices sounds crazy.

But then again, it sounded crazy to me when I heard that major commercial insurers and mega-brokers were conspiring to stage elaborate role-playing stings to rig bids and fix prices under the noses of risk managers and regulators. Who could have imagined that–until the smoking-gun e-mails were released by New York’s then attorney general, Eliot Spitzer?

I have a bad feeling Florida regulators are onto something big. If they’re bluffing, don’t play poker with them, or you might lose your shirt.

Stay tuned!