Florida Gov. Charles Crist has signed legislation that puts the onus on insurance companies to justify rate increases and at the same time freezes rates for the state's property insurer of last resort, which critics charge is woefully undercapitalized.

The governor also vetoed a provision of the law that would have provided $250 million to continue a program that provides incentives for small insurers willing to come to the state and write some of the business now placed with state-backed Citizens Property Insurance Corporation.

The legislation, passed last week, tightens oversight over insurance companies and bars them from increasing rates on homeowners' policies without prior state approval.

The law abolishes arbitration panels, which had the authority to approve rate increases denied by the Office of Insurance Regulation, and says that insurers can only use hurricane models that have been approved by the Florida Commission on Hurricane Loss Projection Methodology.

The new law also doubles the maximum fines for insurers caught violating state regulations.

At the same time, the new law requires insurers to notify homeowners' policyholders 180 days before dropping them and to pay undisputed claims within 90 days of deciding the amount of the payment.

In addition to freezing rates for Citizens until January 2010, the bill increases from $1 million to $2 million the maximum value of homes that Citizens can insure. The bill also sets the stage for assessments against all car and home insurance policyholders if storm losses exceed the state's catastrophe insurance funds.

Many critics have charged the fund is in no position to pay claims in the event of a catastrophe and could 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 the Property Casualty Insurers of America, called the revisions to the rate filing process particularly onerous.

"Building a more stable environment in Florida is critical and measures that are overly restrictive limit the ability of insurers to compete in the marketplace and serve the consumers of Florida."

"We continue to urge the state to take actions that will help efforts to attract and retain private insurers to write more policies in Florida," he added.

An American Insurance Association staff official voiced particular concern over the provision freezing rates for Citizens.

"This just broadens the exposure of Citizens, and ultimately of all Floridians if a major hurricane strikes and Citizens does not have sufficient claims-paying resources to meet its obligations," said Julie Pulliam, a staff official for the AIA's southeast region.

"This bill is not good for the insurance industry, and we believe it is not good for Florida consumers, either," added Ms. Pulliam.

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

Mr. Sampson said it is important for the state to reassess the current system and "take the risk burden off of Florida taxpayers and place it back in the capital markets."

In his veto statement, Gov. Crist said he opposed spending an additional $250 million in funds from Citizens to help move risks out of the program--a provision supported by the insurance industry.

"The citizens of Florida are already feeling the heavy weight of property insurance and property tax burdens. I do not support risking an additional financial hardship," Gov. Crist said.

However, Mr. Sampson said the funds would help promote a return to a competitive marketplace and hoped the legislature would come up with appropriate funding in 2009.

(This story was updated June 3 at 10:42 a.m.)

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Fla. Tightens Insurer Regulation; Freezes Citizen's Rates

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