Homeowners Market Moves Spark Confrontations With Trio Of Regulators

According to the order, rates will go into effect Jan. 1 for new and renewal multiperil business, and Feb. 1 for wind-only business.

Citizens was given the go-ahead by law in 2009 to begin increasing rates to become more actuarially sound, but premium increases are capped at 10 percent per policyholder. Prior to the 2009 law, Citizens' rates were frozen for three years.

Without the cap, Citizens said it would be seeking an average rate increase statewide of 58 percent for multiperil and wind-only policies to be actuarial sound.

According to an executive summary from a July 19 Citizens committee meeting, actuaries included non-catastrophe and sinkhole losses in the rates. Within the rate approval order, the OIR said Citizens must inspect homes for sinkholes on any new business or policyholder request to add sinkhole coverage.

As of Aug. 31, Citizens has more than 1.2 million policies in-force, the most in Florida. State Farm had about 746,430 policies in-force as of March 31.

MISSISSIPPI BLUES

Meanwhile, in Mississippi, Insurance Commissioner Mike Chaney said a request from Allstate for a 44 percent average statewide rate increase in homeowners insurance was not justified by actuaries.

Allstate said it found Mr. Chaney's comment perplexing, considering the fact that an actuarial report commissioned by the Mississippi Insurance Department found the 44 percent hike was appropriate to reflect the company's increase in non-hurricane and non-wind-related claims and claim costs.

Commissioner Chaney has denied the rate filing, saying he would not approve a 44 percent increase without a court order compelling him to do so.

"We are disappointed the department continues to deny our request to charge a competitive price for the risks we face in Mississippi," an Allstate representative, Allison Hatcher, said in an e-mail.

Commissioner Chaney said that one actuarial report did conclude the rate request was sound, but he has another that concludes Allstate is not justified to receive more than an 18 percent rate increase.

"These companies know how to work the system–you put garbage in the front side and get garbage out of the back side," Commissioner Chaney told National Underwriter. "But the fact is there is a lot more to approving rates, such as market disruption and unjustified use of certain models."

Commissioner Chaney said Allstate used a catastrophe model that has "never been proven to be correct."

The commissioner is also of the opinion that Allstate–based on the company's own comments–is attempting to price itself out of the Mississippi market.

The comment that remains stuck in Commissioner Chaney's craw is one made by George Ruebenson, former president of Allstate Protection, during an Allstate Corp. conference call to discus third-quarter 2009 results. In speaking of Allstate's risk management program, Mr. Ruebenson said if the company could not reduce the exposure through risk management, Allstate would "simply price our way out of the problem." Mr. Ruebenson is now retired.

Ms. Hatcher said Allstate wants to "remain in a strong position in Mississippi. We want to be there for our customers. We want a strong insurance marketplace in Mississippi where consumers have choices."

Commissioner Chaney said he believes Allstate "is asking its policyholders to pay for some management mistakes. Consumers shouldn't have to be held accountable for that."

Allstate had 12.6 percent of the homeowners multiperil insurance market in Mississippi–third to State Farm (25 percent) and Southern Farm Bureau (15.8 percent), according to Highline Data (www.highlinedata.com), part of Summit Business Media, which publishes NU.

NEW YORK

In other news, New York Insurance Superintendent James Wrynn has outlined several proposals to ensure access to homeowners coverage, including limits on deductibles and non-renewals, as well as the possible creation of a catastrophe pool.

However, industry associations criticized the proposals and warned they would be counterproductive for the market.

The Property Casualty Insurers Association of America said the superintendent is "trying to fix a problem that doesn't exist."

"We are concerned that these proposals could create marketplace conditions that negatively affect both the availability and affordability of coastal homeowners insurance for consumers," said Kristina Baldwin, assistant vice president for government affairs for the PCI.

The New York Insurance Association said it is surprised by Mr. Wrynn's proposals and is "unaware of an availability problem in New York." The department's proposal is "counterproductive, unnecessary, burdensome and unduly restrictive," the NYIA added in a statement.

However, the department's actions drew praise from the Independent Insurance Agents and Brokers of New York.

"For several years, New York State-licensed insurance companies have restricted the amounts of homeowners insurance they will provide in the coastal areas, particularly Eastern Long Island," said the producer group. "These restrictions arose out of concern for potentially catastrophic losses should a hurricane strike. Consequently, homeowners have been forced to obtain coverage from unregulated companies or from a market of last resort."

Citing figures provided by the Excess Line Association of New York, IIABNY said non-licensed companies wrote 16,000 homeowners policies in 2009, up from 4,400 in 2005 (the year of Hurricane Katrina) and 3,300 in 2000.

"One out of every five dwellings insured by the New York Property Insurance Underwriting Association (the state's market for property owners when no insurance companies will provide coverage voluntarily) is on Long Island," noted the agent association.

"These proposals from the New York Insurance Department are an important first step to restoring a healthy homeowners insurance market for the state's coastal areas," said Thomas J. Crowley of Maran Corporate Risk Associates in Southampton, IIABNY's secretary-treasurer. "We appreciate the department's efforts on this issue and look forward to working with them and our insurance company partners to ensure a vibrant and competitive market for homeowners near the ocean."

Mr. Wrynn has called a meeting of the Temporary Panel on Homeowners Insurance Coverage for Oct. 13 to talk about his proposals. The panel was created by law to look at insurance issues on the coast.

The insurance department "will explore the viability of creating a pool or some plan that could be used to cover the cost of a catastrophe and reduce premium increases after a catastrophe," according to a statement from the department.

Calling that proposal "ill-advised," PCI's Ms. Baldwin said "government intrusion into the private market should be limited to instances in which market problems require action. In this case, there are no problems."

The reinsurance market is stable and healthy, she added.

Mr. Wrynn's proposals include standardized windstorm deductibles. Insurers now charge deductibles for wind damage whether it is caused by a hurricane or not. New regulations would limit these deductibles.

Finally, Mr. Wrynn would like to impose regulations on insurers attempting to reduce risk by dropping policies on renewal. Currently insurers can drop 4 percent of their policyholders without department notification. Mr. Wrynn would like to change this so that if any reduction in a given county is 2 percent or more, the insurer must file a withdrawal plan.

The proposals could create an unattractive market for insurers, Ms. Baldwin warned.

Windstorm deductibles in New York were devised in the 1990s to address availability problems on the coast. The deductibles allowed insurers to increase policies written in high-risk areas, according to Ms. Baldwin.

New regulations on non-renewals proposed by Mr. Wrynn could deter insurers from writing in New York, she predicted.