At a hearing yesterday before the Florida Office of Insurance Regulation, Citizens Property Insurance Corp. officials blamed sinkholes as the major reason the public insurer needs a rate increase.

Testifying at the public hearing in Tallahassee, Paul Palumbo, a senior vice president for underwriting, said Citizens took in $19.6 million for sinkhole coverage in 2009. But the company paid out $97 million in claims costs.

Citizens is asking for an average rate increase of 8.4 percent. The average increase being asked for policies that cover homes, condominiums, mobile homes and vacation or rental homes is 9.3 percent. The rate increases would vary quite a bit depending on the area, however. Some areas would have a decrease, while in others the increase could be as high as 11 percent, Citizens said.

The rising cost of sinkhole coverage in Florida has hit all home property insurers. Last month, Insurance Commissioner Kevin McCarty announced that the Office was surveying insurance companies about claims to get a better idea about why, suddenly, Florida insurers are paying so much more in claims costs.

Some say the reason for the raft of claims is that the public has learned about sinkholes, and people have begun making claims for any cracks they see in their homes. Investigating possible sinkhole damage, which an insurer is required to do, can cost tens of thousands of dollars.

At the hearing, Palumbo said there has never been a catastrophic claim for sinkhole damage in Citizens history. The claims have been for cracks in driveways and other relatively minor, possible damages.

He also noted that many of the claims are coming from areas outside of the region near Tampa Bay that has historically had the majority of sinkhole problems, the so-called “sinkhole alley” of Pasco and Hernando counties. According to Citizens, there have been about 300 claims made in the Miami area since the start of 2008.

Lynne McChristian, florida representative of the Insurance Information Institute, said in a telephone interview that the fact that Citizens is having a sinkhole problem is not a shock. But the extent of its problem is striking.

“It is rather surprising and it has a lot to do with the fact that the burden for investigating whether damage is caused by a sinkhole is borne by the insurer, and those investigations can be quite expensive,” she said.

McChristian said the Institute thinks language in the current state statutes that define what sinkhole damage is, for insurance purposes, is too vague. “What is missing from the statute is a definition of ‘structural damage’,” she said. “The absence of that definition has given rise to policyholders who consider any visible, cosmetic damage to come from sinkholes, rather than normal settling.”

Citizens is Florida’s largest residential home insurer, with about 1.2 million policies. Last month, Citizens announced that the number of homes and businesses it is insuring has been growing faster than anticipated, as at least two insurers are no longer in business in the state. In June, Citizens said, it had 1,151,319 property policies, or 110,000 more than had been budgeted for.

The Office of Insurance Regulation has 45 days before it must make an initial decision on the rate increase request.

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A lawsuit accusing Prudential Insurance Co. of America of improperly collecting interest on unpaid veterans’ life-insurance benefits was expanded to include claims of fraud.

The plaintiffs, seeking to have the case certified as a class action, or group, lawsuit, on behalf of 60,000 beneficiaries of military life insurance policies, filed an amended complaint yesterday adding the fraud claims and additional claimants. The case was originally filed July 29 in federal court in Springfield, Massachusetts.

The suit claims Prudential fails to pay beneficiaries in a lump sum as required by U.S. law and the language of the policies, instead encouraging them to leave the money in accounts with the company, which pays them a small amount of interest.

Prudential is believed to have made “half a billion dollars or more,” the amended complaint said.

The plaintiffs, who are the beneficiaries of eight military life insurance policies, said Prudential puts death benefits into “Alliance Accounts,” which pay only 0.5 percent to 1.5 percent interest. The company invests the money at a higher rate of return and keeps the difference, according to the suit.

Bob DeFillippo, a spokesman for Newark, New Jersey-based Prudential Financial Inc., declined to comment on the suit. He said the company informs death-benefit beneficiaries of their payment options and that they can immediately withdraw all the money from their Alliance Accounts and invest it wherever they choose.

More than 100 insurance carriers earn investment income on $28 billion owed to life insurance beneficiaries, Bloomberg Markets magazine reported last month.

The case is Lucey v. Prudential Insurance Co. of America, 10-30163, U.S. District Court, District of Massachusetts (Springfield).

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Insurance companies contracting with the Department of Veterans Affairs (VA) to provide life insurance to soldiers have been profiting off monies intended for survivors of those killed in Afghanistan or Iraq.

Instead of paying lump sums to beneficiaries of troops killed, companies like Prudential and MetLife provide them with “checkbooks,” giving parents and relatives the impression that the life insurance money has been put into a bank account for them to draw on whenever they like. In reality, the money sits in general corporate accounts earning Prudential 4.8%, while the beneficiaries receive maybe 1%.

In reality, survivors have the right to take all the money and then put it in money-market accounts that earn a higher rate of interest.

“I’m shocked,” Cindy Lohman, whose son was killed in Afghanistan, told Bloomberg News. “It’s a betrayal. It saddens me as an American that a company would stoop so low as to make a profit on the death of a soldier. Is there anything lower than that?”

Jeffrey Stempel, an insurance law professor at the University of Nevada, Las Vegas, called the scheme “institutionalized bad faith.”

Rep. Bob Filner (D-California), the chairman of the House Veterans Affairs Committee, criticized not just the insurance industry, but also the VA employees who “too often failed to explain all the options available for these families in their time of need.”

David Evans, the Bloomberg reporter who developed the story, says that MetLife created the scheme in 1984. It soon spread throughout the insurance industry, creating “a shadow banking system” worth $28 billion.

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The Financial Reform Bill, also known as the Dodd-Frank Act, has cleared congress and will go to the President for final approval this week.

The Act provides for 250 new regulations to be implemented by eleven different federal agencies. The rule-making process is designed to correct the most egregious practices in the financial sector in order to avoid the economic crisis that precipitated the collapse of many banks and financial products companies and was largely responsible for the current world recession.

Harry Reid, Senate Majority Leader, said, “Getting there hasn’t been easy. Wall Street doesn’t like this bill. Why would they want us to change the system they rigged? Their cronies in Washington don’t like it either.”

The Federal Insurance Office (FIO) will be established for oversight of the development of insurance-related laws. Its role will be advisory as opposed to being regulatory. Education is the central role of the FIO. Explaining how insurance is woven into the fabric of our nation’s financial system will be the primary focus.

The pending law will include a surplus lines insurance reform section that will streamline various regulations and make tax payment mechanisms more efficient.

The “proof in the pudding” will be just how effective, in the long run, the regulatory changes will be to guaranteeing that past harmful practices in the financial industry are never repeated.

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The U.S. House has approved an overhaul of the federal flood insurance program.

Among other things, the measure would delay mandatory insurance by five years in areas newly designated as flood hazard zones.

If the bill becomes law, it would provide relief to many home and business owners in the Metro East.

Levees there need major repairs; while a fix is underway, many residents fear the costs of a hazard zone designation from if the Federal Emergency Management Agency.

The legislation now goes to the Senate, where its fate is uncertain.

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Yet another state has enacted laws against habits that could lead to higher auto insurance rates.

With the stroke of Governor Jack Markell’s pen, Delaware became the 30th state in the country that has added restrictions against texting while driving. Texting while behind the wheel is also a primary offense, meaning law enforcement officers can pull someone over for it.

“Electronic devices are potentially lethal in the hands of any driver,” U.S. Transportation Secretary Ray LaHood said. “Thanks to Governor Markell, everyone who rides on Delaware’s roads will be safer due to enactment of this strong measure.”

According to the Department of Transportation, more than 200 pieces of legislation are being considered that involve distracted driving. Furthermore, the federal government has taken its own steps.

Those included a summit held by the Transportation Department last year to examine the problem of distracted driving, including its effect on younger people. The meetings led to President Barack Obama signing an executive order banning federal employees from taking part in the practice while behind the wheel of a government car.

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As oil keeps flowing from an uncapped well alongside the sunken hulk of the Deepwater Horizon, the insurance industry is becoming more concerned about the cost of the disaster.

At first, the industry focused on the rig itself. Transocean Ltd.  , its owner, has $560 million of insurance covering total loss and wreck removal. Several insurance industry executives have estimated this could be an $800 million to $900 million event.

But a much bigger hit could come from liability claims stemming from the oil spill. That’s especially true if lots of oil pollutes the shorelines of Florida and other states around the Gulf of Mexico.

“The flood of lawyers to Florida is probably equal to the flood of oil coming to the coast,” Mark Byrne, chairman of Flagstone Reinsurance Holdings , said during a conference call with analysts on Tuesday. “There are other possible losses out there, damage to shore line, damage to properties, business interruption caused by the slick.”

Florida coastal residents are being advised to take photos of their properties before and after the slick hits so they can purse BP Plc and others for any loss they think they suffer from the pollution, Flagstone Chief Executive David Brown noted.

“You’ve now got the consequent loss of what will happen with this oil slick,” he said. “So a loss not just from the fire and subsequent collapse and sinking of the rig, but also now the pollution.”

BP , which is the operator on the lease with a 65% stake, insured itself, rather than buying coverage from insurance companies.

That means the company is responsible for funding clean-up operations in the Gulf of Mexico, according to rating agency Fitch Ratings. The cost of that could reach $2 billion to $3 billion depending on how much oil eventually reaches the shore, the agency estimated this week.

“People may claim against BP or others, but they might try to claim on their own policies for such losses,” Flagstone’s Byrne said.

Neil McMahon, an oil industry analyst at Bernstein Research, estimated that the final cleanup bill could be $7 billion, according to media reports.

Compensation will also have to be paid to other businesses hit by the slick. The cost to the fishing industry in Louisiana could be $2.5 billion, while the Florida tourism industry could lose $3 billion, Bernstein predicted.

Compensation in the billions of dollars may also have to be paid to the families of the 11 rig workers who likely died when the structure exploded and sank.

It’s not clear who will be responsible for these costs.

Rig owner Transocean carries $700 million of environmental liability insurance. Cameron , which made the so-called blowout preventer that was fitted to the rig, has a $500 million liability policy.

“It’s a lot of issues as to is the owner responsible or the operator, and how those contracts go,” Dinos Iordanou, chief executive of insurance and reinsurance company Arch Capital Group, told analysts in a recent conference call.

$10 billion limit?

Flagstone’s Byrne also expressed concern about potential changes in legislation that could expose oil companies to much more liability from the disaster.

After the Exxon Valdez oil spill, the Oil Pollution Act was passed in 1990. This puts a $75 million cap on the liability of oil companies for economic damage stemming from a spill.

Sen. Robert Menendez, D-N.J., Sen. Frank Lautenberg, D-N.J. and Sen. Bill Nelson, D-Fla., introduced legislation this week to raise the cap to $10 billion.

“BP says it’ll pay for this mess. Baloney,” said Nelson. “They’re not going to want to pay any more than what the law says they have to, which is why we can’t let them off the hook.”

BP has said it will pay all necessary and appropriate cleanup costs, along with “legitimate and objectively verifiable claims for other loss and damage caused by the spill.”

On Wednesday, the company said it made $25 million grants to Louisiana, Alabama, Mississippi and Florida to help them contain the oil spill.

“It is also vital that we work together with government and potentially impacted communities to protect the shoreline from any impact of the spill,” BP Chief Executive Tony Hayward said in a statement. “We hope these grants will support the effective deployment of pre-prepared response plans in each state.”

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The Oklahoma Legislature voted overwhelmingly Tuesday to override vetoes of two highly restrictive abortion measures, one making it a law that women undergo an ultrasound and listen to a detailed description of the fetus before having an abortion.

Though other states have passed similar measures forcing women to have ultrasounds, Oklahoma’s law goes further, requiring a doctor or technician to set up the monitor where the woman can see it and describe the heart, limbs and organs of the fetus. No exceptions are made for rape and incest victims.

The second measure passed into law Tuesday protects doctors from malpractice suits if they decide not to inform the parents of a unborn baby that the fetus has birth defects. The intent of the bill is to prevent parents from later suing doctors who withhold information to try to influence them against having an abortion.

Gov. Brad Henry, a Democrat, vetoed both bills last week. The ultrasound law, he said, was flawed because it did not exempt rape and incest victims and was an unconstitutional intrusion into a woman’s privacy. He painted the other measure as immoral.

“It is unconscionable to grant a physician legal protection to mislead or misinform pregnant women in an effort to impose his or her personal beliefs on a patient,” Mr. Henry said.

The Republican majorities in both houses, however, saw things differently. On Monday, the House voted overwhelmingly to override the vetoes, and the Senate followed suit at 10:42 a.m. Tuesday, making the two measures law.

The ultrasound law was part of a bill that was struck down by the state courts last August because it violated a clause in the Oklahoma Constitution that requires bills to deal with only one subject. Republican lawmakers vowed at the time to pass it again.

This year, Republican leaders passed five separate antiabortion bills to satisfy the courts’ concerns. Mr. Henry signed one into law: it required that clinics post signs stating a woman cannot be forced to have an abortion, that an abortion cannot be performed until a woman gives her voluntary consent, and that abortions based on a child’s gender are illegal.

Two other antiabortion bills are still working their way through the legislature. One would force women to fill out a lengthy questionnaire about their reasons for seeking an abortion and then post statistics online based on the answers. The other restricts insurance coverage for the procedure.

Though many states have passed similar laws aimed at curbing abortion, with Tuesday’s action, Oklahoma appears to have become the most hostile to women seeking to end a pregnancy, said Dionne Scott, a spokeswoman for the Center for Reproductive Rights, an advocacy group for abortion rights based in New York.

“It’s the most extreme ultrasound requirement in the country,” she said.

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Property insurance in Florida, as Rep. Bill Proctor of St. Augustine says, is a house of cards. One major storm would blow it all away and with it the state’s economic future.

Legislation sponsored by Proctor would begin to establish a market-based foundation for the state’s property insurance.

Lawmakers and Gov. Charlie Crist should recognize its necessity.

The state’s Citizens Property Insurance Corp. and Hurricane Catastrophe Fund are gravely underfunded. Citizens has roughly $13 billion, though it’s estimated a major storm would cause at least $21 billion in residential damage to Citizens policyholders.

The Florida Hurricane Catastrophe Fund, which provides reimbursements to insurers for a portion of their catastrophic hurricane losses, has only about $6 billion on hand. A major hurricane would require an estimated $23 billion.

All ratepayers would be on the hook for any debt the state insurers incurred, meaning there would be whopping rate increases for all policyholders. These increases would dramatically boost the costs of living and doing business in Florida.

In addition, it appears that many small, private insurance companies operating in Florida are financially unsound.

A recent investigation by the Sarasota Herald-Tribune indicated the state encouraged these shaky companies to write more homeowners policies as major insurers pulled out of the state when regulators refused to approve rate increases. So the ability of many private firms to pay claims is in question.

We are in this mess because the state has sought to maintain artificially low rates, rather than let the market reflect a property’s true risk.

The state was justified in protecting policyholders from abrupt massive rate hikes. But maintaining actuarially unsound rates is putting the state’s finances and its residents’ property at risk.

Proctor’s House Bill 447 (there is a companion bill in the Senate) offers a sensible way to begin to put market forces to work.

It would allow private homeowners to select more expensive coverage, free from regulation, from a well-capitalized company that consumers could trust to respond quickly in a disaster and pay claims.

This would offer an alternative to Citizens or the undercapitalized firms.

It would be strictly voluntary. Ratepayers would make the decision whether to pay more for the assurance the carrier could cover their losses.

Last year, Crist vetoed a similar measure, insisting it did not protect consumers or ensure that the insurers would not leave the state.

But the current situation puts homeowners in far more jeopardy.

Former Gov. Jeb Bush, who managed the state astutely as it suffered a series of hurricanes in 2004-2005, supports Proctor’s plan.

“These types of ideas to fortify the insurance market I think are good ideas,” he told The Associated Press.

The Legislature should pass the reform and shore up the state’s property insurance industry. And this time Crist should heed the advice of his predecessor and sign it into law.

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Gov. Mike Rounds has succeeded in blocking a bill that sought to change South Dakota’s insurance law to give some injured people a better chance of receiving full compensation for their losses.

The Senate fell three votes short of the two-thirds majority of 24 needed to override the governor’s veto. The vote to override failed 21-13.

The bill dealt with situations in which people are injured as a result of someone else’s fault. An injured person’s own insurance company typically pays the medical bills until compensation is received from the person at fault. South Dakota law now allows the insurance company to be first in line to get money from that compensation to recover its expenses on those medical bills.

The measure would have required that injured people be fully compensated for all other losses, such as loss of income or property damage, before their own insurance companies could receive any of the money paid by the person at fault.

In his veto message, the governor said he agrees that the current system is unfair to some injured people but believes the bill goes too far in limiting the interests of insurance companies.

Rounds also suggested that the State Bar come up a compromise for consideration in next year’s legislative session.

The bill’s main sponsor, Sen. Nancy Turbak Berry, D-Watertown, said most people do not learn about the law until they are injured and a settlement does not provide enough money to cover all damages.

“If there’s not enough money to go around, your insurance company gets paid back first,” Turbak Berry said. “Then you’re the one who loses out.”

Turbak Berry said insurance rates have not increased in the other states that have passed similar bills.

In his veto message, Rounds said he believes damages paid before an insurance company can recover anything should be limited to actual past and future expenses. Disputes will arise if injured people can recover all damages, including those for pain and suffering and loss of enjoyment of life, he said.

Turbak Berry said those other damages, which cannot easily be assigned a price tag, are often the most serious damages. For example, people need to be compensated when accidents cause them to lose eyesight or the ability to walk, she said.

Senate Republican Leader Dave Knudson of Sioux Falls urged the Senate to agree with the governor’s veto. Insurance companies have made it clear that premiums would rise if such a bill passed, he said.

Turbak Berry said the bill should be passed to help all South Dakotans who wind up injured through no fault of their own.

“We’re not here to do the insurance industry’s work,” Turbak Berry said. “It’s the people’s work.”

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