Insurance Industry Criticism is Misdirected

Your paper’s editorial of August 10, Betrayal of Trust, is full of bias and vile, but void of essential facts about Florida’s insurance market.

Figures from both the Office of Insurance Regulation and the National Association of Insurance Commissioners NAIC, show that Florida’s insurance loss ratio—that is the percentage of overall premiums collected that were paid out in claims—is about on par with the rest of the nation for the ten year period from 1996-2006.

However, missing from your editorial is a direct comparison of loss ratios in homeowners’ lines of insurance.  After all, hurricanes are what make Florida so different from the rest of the nation.

When hurricane sensitive lines are compared head to head, the loss ratios rise dramatically.  Consider that while homeowners’ lines had a loss ratio of 66.9 percent nationwide, the loss ratio in Florida was at 74.1 percent.  That means that for every dollar taken in as premium over that ten-year period, nearly 75 cents was paid out in losses.

And that does not include the homeowner’s losses of Citizens Property Insurance Corporation.  When those losses are included, the loss ratio is even higher.

Your editorial also cites criticism of Florida’s Insurance Commissioner Kevin McCarty who complained recently that the average savings insurance companies are passing along to consumers as a result of legislation passed this year, is averaging about 12.2 percent—even though that’s the same percentage the Commissioner promised when he calculated the savings back in March of this year.

Consider, when the Commissioner promised savings averaging 24 percent he and his hand-picked consultant, Bob Hunter, both warned the media and the public that their 24 percent calculation would be savings on the hurricane or wind portion of a homeowner’s policy, not on the whole premium.

It is essential to note that the hurricane or wind portion of a homeowner’s policy is 50 to 60 percent of the overall premium.  Do the math.  Twenty-four percent of 50 is about 12 percent.  That is what the commissioner promised, and while the insurance industry warned against making any promises, the savings came in at the level the commissioner promised.

Despite this, the industry is vilified by the Commissioner and your editorial seems more than happy to ride those critical coattails.

Your editorial also criticizes the industry’s use of hurricane models that calculate the probability of loss from hurricanes.  Insurers base their rates on the model calculations.  For years, some public officials have doubted the models and therefore funded, with taxpayer dollars, public model.  The insinuation is that the private modeling companies were somehow in cahoots with the industry to create models that indicate exaggerated losses so companies could keep rates higher. 

What is interesting to note is that earlier this summer, the initial results of the public model were presented and it showed losses even higher than the private models.  When that happened, and politicians were embarrassed, the public model was suddenly withdrawn for some additional tweaking”.

How much faith can we put in the “revamped” public model if and when it is ultimately presented  to us again?  And if it mysteriously shows losses below the private models will your paper be the first to criticize, with equal vile, the political pressure that would seem so apparent?

Gary Landry
Vice President
Florida Insurance Council