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Insurance Rates Could Drop by a Third

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RISMEDIA, March 5, 2007-(MCT)-Palm Beach County residents will see an average drop of 34.5% in property insurance rates starting June 1, according to state regulators' initial estimates.

Regulators have not yet calculated average policy savings for the Treasure Coast and cautioned Thursday that actual savings could vary significantly, depending on the insurer.

The rate reductions are the centerpiece of a plan to control spiraling insurance rates that was approved by state lawmakers during a special session in January and signed into law by Gov. Charlie Crist, its chief proponent.
Major rate increases by private re-insurers have been a key factor in driving up insurance rates. The plan expands a state fund that sells reinsurance-insurance for insurance companies. It offers insurers discounted rates and requires them to pass savings along to customers.

State Insurance Commissioner Kevin McCarty said insurers will be required to file new rates by March 15 that will go into effect as policies renew starting June 1. He provided companies with details Thursday.

Insurers are to take between 24% and 67% off the hurricane portion of an insurance premium to reflect savings from buying the cheaper reinsurance from the Florida Hurricane Catastrophe Fund.

The smallest cuts are in the Panhandle, where the hurricane portion of a policy accounts for about 10 percent of the policy premium. The biggest are in Miami-Dade County, where more than 50 percent of the premium is due to hurricane risk.

Although McCarty's office will monitor the process, it will be up to insurers to calculate a particular policyholder's total savings once it slices and dices the hurricane reductions.

"We are cautiously optimistic that companies will act in good faith and provide the full benefit so policyholders will get as much relief as possible," McCarty said.

The insurance industry has said it will cooperate but continued to warn Thursday that the rate cuts were a mirage, given that the catastrophe fund would assess homeowners, auto and commercial policyholders if insurers suffer major losses.

"It's a very big gamble, one the state will eventually lose," said Robert Hartwig, an economist with the industry-funded Insurance Information Institute. "The legislature and the governor were able to appease angry voters by offering rate reductions, but it doesn't really add up." The expanded catastrophe fund is offering as much as $32 billion in reinsurance for Florida insurers but will have only $2.2 billion in reserve after it collects premiums for this year.

Policyholders — and potentially the state of Florida — would be on the hook for billions if a Katrina-like event occurred in the state.

Homeowners, auto and commercial policyholders already are paying a 1 percent assessment for the next six years to make up for a $1.35 billion shortfall in the catastrophe fund following the 2004 and 2005 hurricane seasons. The fund's entire reserve of $6.2 billion was paid out to insurance companies during those seasons.

McCarty conceded that the state was taking a risk but said lawmakers and the governor had little choice. They had to shape a plan that would offer rate relief for homeowners hard-pressed to pay premiums that have skyrocketed in recent years.

Robert Hunter, insurance director of the Consumer Federation of America, called the legislature "brilliant" in developing a plan to bypass the private reinsurance industry. "In the long run, this is the way to go, regardless of what happens in one particular year" from hurricanes, he said.

Hunter, an actuary, was hired by McCarty to calculate the rate reductions insurers must make.

The rate relief likely will be a disappointment for at least 40 percent of the Florida market. That includes policyholders of the state's two largest insurers, Citizens Property Insurance Corp. and the State Farm Florida Insurance Co.

State Farm Florida, with about a million policyholders, already was buying reinsurance at relatively low rates from its parent company. Officials with the insurer have said their premium reductions could be less than the statewide average because they were not getting savings from the catastrophe fund.

State-sponsored Citizens, Florida's largest homeowners insurer, with 1.3 million policyholders, is estimating statewide premium savings of 8 percent to 10 percent from the new plan, spokesman Rocky Scott said.

Citizens will not make the larger cuts required of other insurers because it is not buying private reinsurance, so has no savings to pass on.

During January's special session, the legislature canceled two Citizens rate hikes that would have increased premiums by more than 100 percent in South Florida coastal areas this year.

Other insurers' rate reductions also could be less, McCarty said, citing a number of factors. For example, if the insurer has an approved rate increase in the pipeline, it will still appear upon renewal of the policy. Also, some insurers already have chosen to cap rates in certain areas and may end that practice with the new law.

The bottom line: Homeowners won't know how much they'll be saving until they get their bills.

Copyright © 2007, The Palm Beach Post, Fla.

Distributed by McClatchy-Tribune Information Services.

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