It might have been just another property insurance rate hearing in Florida, but for Insurance Commissioner Kevin McCarty, the July 10 proceeding was "illuminating."

Instead of the insurer's passing on the cost reductions allowed by legislators and reducing rates, it would use part of the money to "shore up its financial surplus" and seek a rate hike.

Worse still, it did not appear to him to be an isolated case.

McCarty has given notice that he will not approve that particular filing, from Florida Farm Bureau Insurance Cos., but that's just the beginning.

The state's top insurance regulator is seriously considering rejecting proposed rate cuts for State Farm Florida Insurance Co. (7 percent) and Allstate Floridian Insurance Co. (14 percent) as too small. He could order the state's second- and third-largest property insurers to put bigger reductions in place.

He has rejected State Farm's plan to offer reductions for its auto customers who use State Farm agents to get windstorm coverage from state-sponsored Citizens Property Insurance Corp.

McCarty has even hinted that the department may challenge State Farm's plan to drop more than 50,000 policies, starting in January.

While McCarty has broad power to ultimately reject any increase or policy change, insurance companies can appeal the decision, first to an administrative law judge and ultimately to the state circuit courts. Those disputes could delay rate cuts for Florida homeowners for months and leave the insurance companies in limbo.

A State Farm spokesman declined to comment, saying that company officials would communicate their concerns with regulators directly.

McCarty's aggressive stance comes amid increasing questions as to what happened to the assurances of Gov. Charlie Crist and state lawmakers that significant rate reductions would result from the special session on property insurance in January.

Insurers had complained that rising reinsurance rates were the primary reason they had to raise rates. To address this concern "at the request and support of many insurers," according to McCarty, legislators expanded the state hurricane catastrophe fund.

Regulators originally had said customers could expect property insurance rates to drop by a statewide average of 24 percent - and even more in coastal areas - as the result of a $12 billion-plus expansion of the state hurricane catastrophe fund. The fund sells discounted reinsurance, which is insurance for insurance companies.

The expansion of the fund was supposed to allow insurers to buy less reinsurance from the costly global marketplace, then pass along the savings to customers.

In the case of Family Farm Bureau, the first insurer to file its "true-up," it used the money to purchase additional reinsurance and "shore up their financial surplus," according to McCarty. A true-up is the final accounting of an insurer's expenses in purchasing reinsurance.

Family Farm counters that the reinsurance was needed to meet the risks of a one-in-250-year hurricane. Further, company officials said they always have attempted to purchase that level of reinsurance.

McCarty said the issue extends to other insurers. Of the 46 true-up filings, 35 have called for rate increases, averaging 37.3 percent, and wiping out all of the savings achieved by insurers during the first filing.

He also blamed some insurers for not passing along savings to customers because they have raised their "profit expectations" to 15 percent or 20 percent. Florida law had limited underwriting profit for homeowners' insurers to less than 4 percent, but insurers contend that the law does not apply anymore because of the legislature's changes.

McCarty said other insurers seem to be buying unneeded additional reinsurance from the private market to wrap around the coverage of the state fund, instead of passing along savings to customers.

When insurers made filings in March to comply with the law, the average savings turned out to be only 12 percent. McCarty said regulators thought cuts would increase when insurers filed true filings to account for their final cost of buying reinsurance.

That has not happened, prompting McCarty to go public. He is confident, he said in an editorial, that insurers will "do the right thing by their policyholders."

Specific issues will be addressed. State Farm's request to drop thousands of policies is too vague, McCarty said. Company officials say they have developed a setback line, which varies between 2 and 5 miles from the coast, where they won't do business. All of the policies dropped would be within 5 miles of the Atlantic Ocean or the Gulf of Mexico, they said.

McCarty said the filing "makes no sense."

State Farm never spells out that policy in its filing with regulators. He said the plan incorporates new underwriting guidelines that would enable the company to drop policyholders at will in areas that it deems vulnerable to hurricane damage.

''This is unfairly discriminatory," he said.

McCarty also explained his reason for rejecting the State Farm policy - put into place in March - that allows its auto policyholders to receive a 22 percent discount if their State Farm agent places them with Citizens for homeowners insurance.

McCarty said the policy could cause more policyholders to leave State Farm for Citizens voluntarily, giving the state-sponsored insurer more risk in a hurricane.

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By RANDY DIAMOND

Palm Beach Post Staff Writer

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