McCarty addresses insurer insolvency reports

All but a few Florida insurance companies have weathered a financially stormy year, the state’s insurance commissioner said Tuesday, responding to reports about insolvencies in the marketplace.

Insurance Commissioner Kevin McCarty told Gov. Charlie Crist and the Cabinet that only two companies have gone into receivership – though others are on the agency’s radar screen. Media stories have reported troubles in Florida’s domestic insurance market, and McCarty was asked to give the Cabinet a status update.

While some companies may be shielding profits by sending Florida premiums to their national firms or affiliated agents, insurers also have had bona fide events causing them to post a loss despite a year with few natural calamities and no hurricanes, according to McCarty.

“It is a reality in a capitalist system,” McCarty said. “There are some companies that are winners and some companies that are losers. Even when we have a strong economy, we have failures of insurance businesses.”

Of 206 companies reporting, 144 firms reported surplus gains, which are used to pay for future storms, for the year; 60 percent reported reduced surpluses. Despite the surpluses, 100 companies reported operating losses for the year compared to 81 companies that posted gains.

McCarty attributed the losses to a handful of factors including higher than expected mitigation reimbursements, recent replacement cost legislation and higher reinsurance costs.

Critics, including former state Rep. Don Brown, say such failures can be expected in a free market system but should not occur in a highly regulated industry like insurance. He disagreed with McCarty’s contention that no amount of regulation can keep all companies afloat.

“How in such a regulated market can we just assume some are going to fail?”

McCarty, however, said the agency has done a relatively good job spotting shaky companies before they go belly up and leave customers in the lurch. Two companies, American Keystone and Coral Insurance Co., failed last year and were ordered to liquidate. Others have been required to recapitalize and take other action under OIR oversight.

“Any known, troubled company without the financial wherewithal to deal with paying of claims will be required to re-capitalize, merge, be acquired or be liquidated,” McCarty said.

Going forward, OIR is backing a pair of insurance reform efforts now working their way through the Legislature that would rein in public adjusters, bolster financial requirements for new companies and allow insurers to hold back a portion of replacement costs until the work is completed.

McCarty said the agency supports legislation (SB 2044) by Sen. Garrett Richter, R-Naples, which bolsters financial requirements for new firms and allows companies to adjust rates for inflation without seeking approval from Florida’s Office of Insurance Regulation.

“The bill will go a long way to address the cost drivers that we’ve seen in the system,” McCarty said.

Another measure (SB 2264), by Sen. Mike Bennett, R-Bradenton, increases regulation of public adjusters and is also supported by OIR. The measure would reduce from five to three years the deadline for filing claims on a particular storm.

Source: News Service of Florida,