Published: March 11, 2012
The Florida Legislature unfortunately ended its 2012 session Friday without taking steps to further “depopulate” the state-run Citizens Property Insurance Corp. Lawmakers and other state officials must make it a priority.
Intended as the property insurer of last resort in Florida, Citizens has swelled to the state’s largest, with 1.5 million policies. This dangerous policy must be reversed.
Citizens’ customers in many cases enjoy rates below those charged by the private market, which dropped them. But giving a good deal isn’t Citizens’ purpose. It should not continue providing low rates and coverage in direct competition with private insurers and deterring more private capital from investing in Florida.
The state and all its insured property owners are on dangerous turf because of Citizens’ vast umbrella. As of late September, Citizens had a total exposure of more than $508 billion. Yet, according to state reports, it had only $12.9 billion available to pay claims last hurricane season.
Citizens has estimated the “one-in-100-year” hurricane, which officials say has a 1 percent probability of striking, would cost more than $22 billion. This is simply too much risk for all insured property owners in the state — who must pay assessments when Citizens doesn’t have enough money to pay claims.
Citizens is required to maintain a program to reduce its number of policyholders, and it is making inroads. In 2009 and 2010, Citizens shed a total of more than 200,000 policies.
The entity is taking steps to stop offering better deals than private insurers. This includes eliminating “builders’ risk” coverage, which covers a builder while a project is being constructed. Citizens has been providing much cheaper coverage than the private market, says state Insurance Commissioner Kevin McCarty.
The Legislature had a chance to make more inroads this session, but a bill by Sen. Garrett Richter, R-Naples, met heavy resistance and died. Richter’s bill would have allowed “surplus lines” insurers to take on Citizens’ policies.
These insurers are not regulated by the state and thus don’t need state approval for rates or rate increases. In addition, a policy covered by a surplus lines company isn’t backed by the Florida Insurance Guaranty Association, which usually pays claims if licensed insurers go broke or collapse.
A major flaw in the bill was that surplus lines firms — which would have had to meet certain legislative requirements, including “maintaining” $50 million “in surplus” — would have been able take a Citizens’ policy without a policyholder initiating it.
While a property owner could have elected to stay in Citizens, such a forceful policy is unfair. It should be up to a property owner to make that decision after evaluating the risks — the state shouldn’t allow a company to make the decision and then tell an owner to “opt out” if the terms aren’t right.
Fortunately, the legislation was amended in the Senate to protect Citizens’ customers from being targeted so easily, and that helped lead to its death in the House.
Would surplus lines insurance help reduce Citizens’ scope? It’s worthy of more consideration. It could be another much-needed tool, not only to shrink Citizens but to offer property owners more choices.
McCarty says this type of coverage “will fill a greater void in the future.” Already, he says, surplus lines insurance is “used extensively” in Florida, covering commercial properties and “high-value” homes.
For Citizens’ policyholders, it could be a viable alternative. For one thing, they would no longer be subject to the assessments Citizens hits its policyholders with when facing a deficit.
Citizens officials and state lawmakers should continue working to depopulate the entity. Reducing Citizens’ lines of coverage, avoiding risky, hazardous areas, particularly barrier islands, and putting a stop to covering homes worth hundreds of thousands of dollars will help do it. And lawmakers shouldn’t give up on determining whether surplus lines insurers can play a role as well. If Citizens is going to remain, it needs to be the insurer of last resort.