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Editorial - "Pinocchio's nose and rising insurance rates." What do they have in common?

February 23, 2006

Dear Editor:

The insurance industry in Florida is now telling a "Pinocchio" story.  The more it claims losses and the need to raise rates, the longer its nose grows.

In a recent New York Daily News story authored by Joanne Dorshow, executive director of the Center for Justice & Democracy, and Robert Hunter, director of insurance at the Consumer Federation of America many of the truths have been told about the insurance industry in Florida as well as other states.

Last month Allstate announced that recent Gulf Coast hurricanes were forcing the company to stop offering new homeowners policies in "storm risky" areas.  The company called upon the federal government for legislation asking taxpayers to subsidize Allstate and other companies in these areas so that they could resume coverage.

The insurance industry clams losses of $40-60 billion because of Katrina and Rita.  Also proclaims this is justification for considerable rate increases, coverage cutbacks and a federal bailout.  Why?  The property/casualty insurance industry came out of 2005 with a profit estimated at $35.6 billion, the second most profitable year in its history.  This follows three years of profits that exceeded $100 billion.  Ironically, 2004 was the industry's most profitable year ever!  Despite four hurricanes directly hitting Florida, Allstate alone earned $3 billion in 2003 and 2004.
To add to the Pinocchio story the industry planned for a year with the kind of hurricane claims it had received in the previous year.  Insurers changed their rates years ago in the wake of hurricane Andrew.

The property/casualty industry is exploiting a crisis and it is not the first time.  Ten days following September 11, a consortium of 15 insurance executives met privately with President Bush and the Secretary of Commerce, Donald Evans.  This meeting was an effort by the industry to limit insurance company liabilities for future acts of terrorism.  They demanded a multibillion dollar "backstop" which capped their exposure.  By the time the bailout passed in Congress, there were no economic problems specifically related to terrorism insurance.

This industry is accountable to no federal agency - only to the State of Florida.  This is an industry subject to little if any, federal regulatory laws, anti-trust laws, and no oversight by the FTC.  What an equation and a tall tale for Pinocchio to "spin."  The mess Floridian's have with Citizens Insurance, little state regulation, nonexistent data disclosure requirements and an industry that can get the President's ear with a moment's notice.

Federal legislators who support Allstate's request believe that it is in the best interest of the public they represent to bail the industry out.  But the facts show there is no need for this - simply an industry that has another story like Pinocchio to tell.  However if this draconian legislation that is proposed is allowed to pass - unlike in the fairytale - Floridian's, residents of Gulf States and those in other coastal areas of the US will become true victims of this real lie.

Edward M. Ricci

Attorney Edward M. Ricci in the law firm of Edward M. Ricci, P.A., has specialized in civil trial law for more than 34 years. The firm is headquarted in West Palm Beach, Florida at 515 N. Flagler Avenue, Suite 400. Mr. Ricci can be contacted at (561) 842-2820. Additional information about Edward M. Ricci, P.A. may be obtained from the firm's website at www.edriccilaw.com.
 

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