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By TBO.COM | Staff

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.

By Michael Adams | February 28, 2012

Citizens Property Insurance Corp. currently has a three-tier assessment scheme that is triggered in a sequential manner based upon any deficits in the insurer’s three separate property insurance accounts. The insurer has a personal lines account, a commercial lines account, and a coastal account.

Initially, following a deficit in an account, Citizens can assess policyholders up to 15 percent of their premium for a maximum total of 45 percent. If that assessment fails to cover the deficit, Citizens can levy a 6 percent regular assessment for a total of 18 percent on all personal lines policyholders in the private market. If further funds are needed an additional 10 percent emergency assessment can be levied.

Under current law, insurers must pay regular assessments upfront and the recoup them from policyholders. However, emergency assessments can be charged to policyholders within 90 days of a deficit and collected over as many years as needed.

Florida lawmakers, however, are looking to change that assessment scheme to reduce the per year assessment percentage on policyholders by giving them more time to retire any Citizens’ deficit while reduce the immediate financial impact on private carriers that under current law have to pay any regular assessment up front.

The Florida House of Representatives approved a bill (HB 1127), sponsored by Rep. Ben Albritton (R-Bartow), who said he merely wants to cushion the impact of assessments without affecting Citizens’ ability to pay claims.

“This bill in no way limits Citizens’ ability to pay their claims on time,” said Albritton on the House floor.

According to a Senate House of Economic Affairs analysis, the elimination of the six percent regular assessment on the private market means that Citizens policyholders would likely see higher assessments while policyholders in the private market would end up just paying the assessments over a longer period of time.

The bill’s primary impact would be on private insurers.

Since private insurers would no longer have to pay regular assessments –except for the two percent assessment in the coastal account—upfront, the change would largely eliminate any impact on the insurers’ net worth. Lawmakers are hoping this will reduce the chance that any insurer will go bankrupt.

Citizens’ officials indicated the bill would have no negative impact on its ability to pay claims in a timely manner. However, since the insurer would no longer collect monies upfront in the form of regular assessments, it may invest more monies in pre-event bonding.

At this time, it appears Citizens will have substantial financial resources entering into this year’s hurricane season.

According to officials, Citizens is expected to have a surplus of $5.7 billion, an amount that could be augmented by another $6.5 billion in reimbursements from the Florida Hurricane Catastrophe Fund. The insurer also has $575 billion in pre-event bonds that would cover losses located along the state’s coastline. In total, that gives Citizens roughly $12.8 billion in claims paying capacity before levying any assessments on policyholders.

That amount is expected to be able cover a 1-in-50 year storm.

Imagine this nightmare scenario for a Florida homeowner:

A letter arrives to say that a private company has taken over your homeowners policy from Citizens Property Insurance Corp. There isn’t much explanation, but the first-year rate quote isn’t awful. The next year, though, the policy goes up 40 percent. That summer, a storm does serious damage to your house. The company that said it would cover you goes under, and there’s no money to pay your claim.

Such a scenario is possible if the Florida Senate goes along with the House in letting “surplus lines” companies assume policies from Citizens, the state-run insurer. Unlike “admitted” companies, surplus lines companies’ rates are not regulated in Florida. Companies can charge whatever they want without approval from the Office of Insurance Regulation. They are not part of the Florida Insurance Guaranty Association, the fund to pay claims from bankrupt companies.

Admittedly, there’s a problem when the state-run insurer of last resort has more policies (1.4 million) than any other company. In its push to shrink Citizens at any cost, however, the House set up hundreds of thousands of consumers for sticker shock and worse.

Traditionally, surplus lines companies have covered high-end, highest-risk properties for whose owners money is no object. Indeed, the Insurance Information Institute’s 2012 handbook says, “The surplus lines market exists to assume risks that licensed companies decline to insure or will only insure at a very high price, with many exclusions or with a very high deductible.” This market is for the oceanfront mansion owner, not the inland three-bedroom two-bath owner. Citizens itself just correctly reduced to $1 million from $2 million the maximum replacement value that can be included in a hurricane policy.

Under HB 245, Citizens policyholders who received offers from surplus lines companies would have to take action to stay with Citizens. Instead, they should have to take action to switch companies, which would more likely prompt a call to their agent with questions. This legislation would enable companies to trick policyholders into thinking that they have no other option. Homeowners now can choose Citizens if the cheapest private policy costs 15 percent more.

During his November meeting with The Palm Beach Post Editorial Board and regularly thereafter, Gov. Scott has spoken of the need to reduce the cost of living in Florida. If the Legislature allows surplus lines insurers to start picking up Citizens policies, it surely will raise the cost of living – dramatically, in some cases – and hurt the recovery of the real estate market. And as former state insurance consumer advocate Sean Shaw points out, what happens with Citizens tends to happen with private carriers. If legislators believe that unregulated property insurance rates will help Florida, they’re dreaming.

- Randy Schultz,

for The Palm Beach Post Editorial Board

By Zac Anderson Saturday, February 11, 2012

TALLAHASSEE

It’s almost heresy in the Capitol, but one conclusion leaps out in the debate surrounding Citizens Property Insurance Corp. in certain committee rooms this year: Florida’s much maligned state-run insurer is in solid financial shape.

The idea runs counter to everything lawmakers and insurance lobbyists have been saying in recent years as they seek to dismantle the government insurance giant. It is being repeated in subtle, sometimes grudging, but unmistakable ways as lawmakers consider ditching one of the assessments Citizens can levy on private insurance policies after a major hurricane.

Insurance companies badly want the assessment gone, so lobbyists who normally denounce Citizens as financially unsound are highlighting the company’s $6 billion reserve, sterling credit rating and enviable borrowing ability to argue that the post-disaster income stream is no longer needed.

Florida’s largest insurer — with 1.5 million policies — is so healthy, they note, it could easily pay the $7.3 billion in claims from a repeat of the record-setting 2004-05 hurricane seasons. Citizens could even survive another Hurricane Andrew — the monster storm that hit South Florida in 1992 and sent the state’s insurance market into a 20-year tailspin — with relative ease, according to fliers being passed out by one insurance company executive at committee hearings.

The optimistic reviews of Citizens’ finances by some lawmakers and insurance lobbyists contrasts sharply with dire warnings they and Gov. Rick Scott have repeatedly issued in recent months.

Indeed, the idea that Citizens is a grave financial risk is being used to justify controversial efforts to push policies out of the state-run company and into the private market. One of those measures is included in a bill that has already passed the House. It would dump thousands of Citizens policyholders into unregulated “surplus” insurance lines, with companies that can raise rates without state interference.

Scott has made reducing the number of policies held by Citizens a priority. Over the last few months, the insurer has eliminated coverage on structures such as screened porches, pool cages and carports. Company officials also have moved to cap coverage on expensive homes and condos near the coast.

Read more on Florida’s property insurance industry

Lawmakers have justified those moves by saying the company has too much liability and could levy assessments on every insurance policy in Florida to help cover claims if a major disaster strikes.

“The very real possibility that Citizens could face billions of dollars in losses and does not have the money to pay for its claims, in my opinion, is the greatest financial threat facing our state’s economy and already overburdened taxpayers,” Sen. J.D. Alexander, R-Lake Wales, wrote in a newspaper opinion column last year.

But the change in tone on the Citizens assessment bill is so pronounced that some longtime Citizens defenders point to it as proof that breathless warnings about the company’s finances have long been exaggerated.

“The bottom line is the scare tactics that some of my colleagues use, that the governor uses and his administration, their scare tactics are not needed,” said Sen. Mike Fasano, R-New Port Richey.

Paul Owers, Sun Sentinel

February 12, 2012

Private companies offer coverage, but state-run insurer’s rates tough to beat

Florida’s largest insurer faces a big risk from hurricane damage and is trying to reduce it by shifting customers to other carriers. But policyholders must do some homework before accepting a transfer, consumer advocates say.

If they decide in favor, they will help shrink state-sponsored Citizens, which has 1.5 million policies and more than $500 billion. The transfers are part of a program approved by the Legislature to reduce the need for post-storm charges if Citizens runs out of money.

Everyone in the state may be charged up to 6 percent of his annual premium if Citizens lacks money to pay claims after a storm. But Citizens policyholders would pay first and could pay the most — up to 45 percent of their premiums.

A few thousand offers are sent to Citizens customers by private insurers every other month. Homeowners who accept the offer sometimes pay higher rates. But if they stay with Citizens, they face the possibility of a steep assessment.

That’s ultimately what persuaded Ray Oneidas, 85, of Tamarac, to leave Citizens recently. Oneidas, who owns a two-bedroom house, said his Citizens premium is $1,800 and he’ll have to pay only $100 more a year for the same coverage with Florida Peninsula Insurance Co. of Boca Raton.

“I decided to get away from Citizens,” he said. “I don’t want to be liable for any deficits.”

In general, a private insurer provides “more robust coverage” with a lower risk of assessments from Citizens, said Roger Desjadon, president of Florida Peninsula.

Sean Shaw, founder of Policyholders of Florida, which calls itself a pro-consumer group, agrees that it’s best to have coverage from a private insurer because Citizens needs to be smaller. In the past, though, he said homeowners who switched complained about rate increases after the first year, when their policies were renewed.

Citizens has 212,621 policies in Broward County and 145,291 in Palm Beach County.

Rick Bogani, head of Connect-Bogani Insurance in Royal Palm Beach, said most homeowners go years without thinking about property insurance because their payments are made from escrow accounts. Homeowners who receive offers should shop for coverage — and not necessarily accept a policy from the company that sent the letter.

The state’s free referral service, the Florida Market Assistance Program, matches customers who can’t find property insurance with licensed agents and insurers selling new policies. Register for the program at fmap.org or call 800-524-9023 for help.

In addition to closely checking rates, homeowners should make sure they aren’t switched to a private company automatically. A letter sent to Citizens policyholders by Florida Peninsula says they must specifically reject the offers or their policies will be switched automatically.

The state allows for that wording because it’s trying to encourage customers to leave Citizens, said Jack McDermott, spokesman for the Florida Office of Insurance Regulation.

Shaw said customers who do nothing shouldn’t face losing their Citizens coverage. “You don’t want people to get [moved] into another insurance company just because they didn’t respond,” he said.