The root cause of our problem is twofold. On one hand you have insurance companies that have been accused of rate gouging by using “smoke and mirror” pricing models. On the other hand you have politicians who are trying to appease their constituents in order to keep their job and posture themselves well to run for the next rung up in the political power structure. Politicians have been accused of keeping property insurance premiums artificially low, by denying either completely, or partially the requested rate filings of private carriers and even Citizens Insurance itself! Clearly neither party is in a good position to make sound long term decisions that may be difficult, but in the long run help the consumers get what they truly need and want. In the long run all consumers want are competitively priced policies from their choice of financially strong companies. Just as the problem itself is twofold, so too is the solution. The solution also requires that these steps be sequential applied.
Step one is change the Chief Financial Officer’s position from one of election to one of appointment. This should not be such a shock if you think about it. Arguably the second most powerful office in the United States, i.e. the Federal Reserve Chairman, is an appointed position, and that is for good reason. Like the demands on the Federal Reserve, the demands of the CFO are highly specialized and require an expert with the freedom to think and act with a long term perspective. Not just anyone can fill that position, and once in office, they need to be totally committed without the distractions that come with being an elected official. Please understand this office should NOT be free from over site. In fact I believe that this office should be over seen by a committee of state elected officials. The committee needs to be bi-partisan and would have the responsibility of not only approving the appointment to the office based upon an agreed qualification criteria, but also maintain a balanced ongoing over site of the CFO and OIR offices.
Once in office the second step of this fix would require the office of the CFO to certify all carrier property pricing models as part of their responsibilities. Certification would require the CFO to establish the necessary certification guidelines. These guidelines would include the standardization and validation of insurance rate making data collection, data pricing calculations and reporting results of the rate indicated needs of the filing carriers. All property rate filing models used by the admitted carriers operating in the state would fall under these certification requirements. Carriers would not be able to submit their property rate filing requests to the OIR unless their models have been certified first. So far this sounds pretty favorable to just the politicians and the regulators! Ok here is the balance. Once a carrier decides to file a rate request based upon a certified pricing model, the OIR is bound to approve the filing with only a plus or minus 5% deviation.
Let that one sink in for a minute. If you think about it this paradigm shift of the currently messed up status quo would work! The reason it would is because it clearly resolves the root cause of the property insurance problem. Politicians would be free from the pressure of doing what might be popular in the short run but clearly wrong for the long haul. The office of the CFO and OIR would be empowered and free to regulate this industry “inflicted with the public’s interest” in a way that’s prudent and sound. Carriers in turn would be able to focus on what is measurable and reliable in their decisions of property insurance rate making and market share. They would no longer have to factor in the state’s political winds and the direction from which they’re blowing. The insurance companies would no longer carry the stigma of filing rates that are really just opportunistic grabs for unwarranted premium hikes!
It is my opinion when something breaks beyond repair it should be replaced NOT just patched up. In this case of a clearly broken Florida property insurance model, it’s time to make a serious and fundamental change to how things get done.
This requires courage, of course, patience too. It also requires resolve and cooperation between all parties concerned. Big important jobs usually do. That being said, it will be well worth the effort for all concerned, especially the insured public.
