Affordable Insurance Under the Regulatory Microscope

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When it comes to winter weather, New York and Florida seem like polar opposites. Despite being polar opposites in terms of winter weather, the two states are forming a massive cold front to find, buy and sell affordable insurance ahead of a blizzard of Congressional reforms.

Under the supervision of Governor Eliot Spitzer, one of the nation’s most ardent consumer protection advocates, the Empire State is often regarded by its statehood peers to be the Gold Standard in all types of industry reform. Other states’ legislators model New York’s bills and praise Governor Spitzer for the heavy lifting he does on their behalf in introducing law-making templates that govern everything, from banking regulation to consumer Lemon Laws.

Florida owes New York yet another legislative nod this week as the Sunshine State’s Department of Insurance exercised its muscle over the quiet holiday season. Officials there clamped down upon one brokerage that it gave a lot of business to, and then loosen its grip on the nation’s largest insurer company. This allowed the “Good Neighbor” (a former homeowner policy writer) to resume writing policies following a two year stalemate due to hurricane losses. Finally, another fledgling brokerage was given some 23,000 policies.

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Under a negotiated agreement, the Good Neighbor insurer can cancel approximately 15% of its policies and raise rates 14.8 per cent. It also permits its contract agents to place business the company does not renew with private insurance companies.

Kevin McCarty, Florida’s Insurance Commissioner, announced the agreement. After two failed attempts to increase its rates by more that 40 percent for homeowners currently covered under the Good Neighbor, and an announcement of its intention to leave the state altogether, this deal comes after McCarty, Florida Insurance Commissioner, announced the agreement.

Officials in Florida said that the deal was a win-win situation for the state and company. They also noted that it is better than the company cancelling 810,000 condo and home policies, and many of these policies ending up with the state-backed Citizens Property Insurance Corp. which was an issue with the original exit plan.

Another move by regulators was to stop Magnolia Insurance, a brokerage based in Coconut Grove, from writing new business until May under a 120-day moratorium.

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Magnolia will have to be approved by the Office of Insurance Regulation for renewals and writing of business. OIR approval will be required for any major transaction or asset transfer, investment, or management change.

OIR has asked the company to cooperate with them in developing a “corrective action plan” that could lead to OIR being acquired. This state action follows a few weeks in which the insurer was stripped of its Demotech rating for failing to provide current financials and evidence of management changes.

Magnolia must comply with the Florida statutes in order to properly notify insureds about any non-renewals. Magnolia could not properly notice that policies are due to renew in January 2010, or within the first few weeks thereof, for non-renewal. Magnolia will renew these policies if requested by policyholders and agents. Magnolia will renew policies if agents or policyholders request renewal. However, Magnolia cautioned that renewal is at the agent’s own risk.

Officials advised agents to seek out another carrier to renew any policies that are due for renewal before the policy expiration. Agents may also try to place business with the Citizens Property Insurance Co, which is state-backed.

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Clearwater-based Homeowner’s Choice Property & Casualty will receive approximately 23,000 homeowner’s insurance policies from Citizens. Since its inception in 2006, the firm has been funded solely as a cooperative between state homeowners policyholders, and its management team. Its portfolio includes former Citizens policies that the state considers too risky.

According to Florida OIR’s web site, Florida OIR will almost double the company’s business. The company already has around $100 million in premiums.

We can expect increased scrutiny of the relatively stable homeowner’s market for insurance. Once affordable healthcare reform is passed, regulators in Florida, New York, and other states with significant financial risk will examine health insurance policies with as little bravado.

Most people think of health insurance as a card with numbers that you take to the doctor’s offices and a small booklet of paper that stays in your filing cabinet or closet. McKinley believes that health insurance and the historical reforms associated with America’s inequalities in healthcare are worthy of healthy discussion. These topics should be explored further and used as catalysts for education, and action.

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