Cap Breaking Could Cloud the Credibility of Citizens Property Insurance

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July 18  |  Citizens, News  |   Danielle Szeliga

A storm is brewing over the credibility of Citizens Property Insurance’s board of directors. Some directors are expected to seek a rate hike that exceeds the 10 percent cap set by the Legislature.

During a workshop at the luxurious J.W. Marriott in downtown Miami on Monday, board members agreed to consider rates later this month that may top the cap, instead of first getting approval from state legislators. The approval process would require waiting until the 2013 regular session.

Florida House Majority Leader Rep. Carlos Lopez-Cantera, R-Miami, cautioned the board that exceeding guidelines set by legislators will damage credibility with the state and, more importantly, the policyholders who are required to pay the bills of the state-backed insurer of last resort.

“This board may not agree with the policies that come out of the Legislature, but they are the laws, whether you agree with them or not,” Lopez-Cantera, who is running for Miami-Dade County property appraiser, told the board members on Monday.

“I’m sure the board members would be happy to tell me why I’m wrong, and why that perception is wrong, but the perception does exist.”

Staff had earlier cautioned the board in a memo that was included with backup for the meeting, stating that by skirting the Legislature, Citizens “could be viewed as exceeding the authority provided under the statute and undermine Citizens’ credibility.”

Increasing rates to the 10 percent cap, which would average about 7.5 percent across the board, would generate an additional $173 million from policyholders, according to Citizens officials.

However, to ensure coverage of any potential problems, the company would need to bolster risk-loaded rates some 27 percent to 34 percent, which would average about 15 percent statewide.

Such a hike would also require increases topping 50 percent for condominium owners and 27 percent on rentals.

Board chairman Carlos Lacasa acknowledged there is a “huge political debate” growing over Citizens and the Catastrophic Fund.

Board member John Rollins said selling Citizens isn’t like other products.

“The market does not determine our rate,” Rollins said. “Our cost structure determines our rate. If you don’t like your Citizens premium, what you’re really saying is you don’t like the amount of cost that collectively all the policyholders are introducing into Citizens.”

Citizens, which collected $3.1 billion in premiums last year, has $6 billion in reserve and $13.5 billion available for claims-paying funds (which includes money that would have to be repaid through fees imposed on policyholders).

Proposals for new rates will go before the board July 27 at a meeting also to be held at the J.W. Marriott.

Rates set at that time will be sent to the state Office of Insurance Regulation for approval.

By statute, Citizens must get approval from the Legislature, which has been opposed to such efforts in recent years and isn’t scheduled to meet again until the 2013 regular session.

Barry Gilway, the new director for Citizens, said the challenge for Citizens is to direct 450,000 to 500,000 of its 1.43 million policies into private firms at a time when the rate gap widens between Citizens and the private firms.

“On a competitive basis, we’re charging less than 50 percent of the (amount our) few remaining competitors (charge) ,” Gilway said.

Rollins said another means to hold down costs could be to reduce coverage.

In 2011, coverage was eliminated for screen porches, carports, pool enclosures and patios not built from the same material as the main residence and a $10,000 cap was placed on cosmetic damages to floors that covered less than 5 percent of a home’s total square footage.

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