As a coastal community vulnerable to hurricanes, Manatee County has much at stake in the years-long dilemma over property insurance. With the Legislature’s failure to overhaul Citizens Property Insurance, the state-run insurer of last resort has been pursuing back-door strategies to shed policies and raise rates.
Citizens, which writes policies for property owners denied coverage on the open market, is Florida’s largest property insurer — carrying 1.4 million policies, with expectations of adding hundreds of thousands more. The company’s exposure to risk continues to soar while its financial outlook looks bleak.
In Manatee County alone, Citizens currently carries 27,500 policies for both residential and commercial accounts. Almost 24,000 of those polices cover personal residences with multi-peril insurance.
While there is wide agreement that reform is vital, Florida lacks the political will to adopt meaningful change. As a result, Citizens’ leadership team it taking the lead.
Florida’s property insurance market began unraveling in the wake of the back-to-back catastrophic hurricane seasons in 2004-2005. With property insurance rates skyrocketing and consumers protesting, newly elected Gov. Charlie Crist unleashed Citizens in 2007 by expanding coverage and capping rates. Property owners fled private insurers to join the public company.
Florida also adopted brutal price controls on the private insurance market, prompting a host of companies to flee the state. In one month alone in 2009, State Farm dumped 1.2 million homeowner policies.
Now Gov. Rick Scott is championing free-market solutions and shrinking Citizens. Higher rates and reduced coverage are inevitable. Citizens is indeed a troublesome financial liability as it holds the power to levy taxes on all insurance policies statewide should another disaster drain its resources. The state must reduce this risk.
Bradenton Rep. Jim Boyd sponsored legislation this year to achieve that goal, but the proposal to shift some policies to secondary “surplus lines” that are not regulated by the state like other private insurers ultimately failed. Pro-consumer lawmakers feared higher premiums since unregulated, out-of-state carriers would have been able to raise rates on their own.
That left possible solutions to this untenable situation in the hands of the Citizens board of governors, which is pursuing a depopulation strategy that includes a summit in Tampa on June 1.
But in advance of that, the board made several policy changes. Homeowner discounts for hardening structures against hurricanes are getting closer scrutiny under a new inspection program, resulting in higher premiums. Citizens dropped coverage for pool cages, car ports and other structures. Property content coverage fell dramatically.
The board planned to charge higher rates for new policies in excess of the 10 percent annual cap currently imposed by state law. But that met stiff resistance, and Citizens backed off — for now.
With the start of hurricane season looming in less than a month, Florida cannot continue to hope that damaging storms pass by. The state’s property insurance market is teetering on a house of cards with Citizens facing more than $500 billion in exposure and holding only $6 billion in cash. The company’s backup insurance, the Florida Hurricane Catastrophe Fund, also faces financial difficulties.
The so-called Citizens Depopulation Summit is designed as a collaborative forum with private insurers and agents to “identify challenges, gain consensus, develop solutions and create an environment that promotes depopulation.”
Success will require political support. We suggest Gov. Scott call a special session of the Legislature to put Citizens reform on a fast track. Florida can’t keep kicking this can forward year after year.