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Citizens Property Insurance is reviewing a plan to remove the 10-percent cap on rate increases for new customers, leading to average price hikes of 30 percent.

TALLAHASSEE — If Citizens Property Insurance Corp. moves forward with a controversial plan to uncap rates for new customers, the price to join state-run insurance will increase by an average of 30 percent next year.

Data prepared for a Citizens committee meeting on Thursday show the plan would lead to significantly higher premiums in most cases and homeowners, in some parts of the state, would pay twice as much as their neighbors for the same coverage.

The plan — which Citizens agreed to study more closely after it sparked public outcry last month — is part of the insurer’s aggressive push to reduce its risk and shrink in size. Central to its strategy is finding ways around a 10-percent cap on rate increases put into place by the Florida Legislature in 2009.

Christine Turner Ashburn, spokeswoman for Citizens, said the proposal is one of several options the insurer is looking at to help reduce the risk of financial calamity after a hurricane.

“In reviewing the law, a question was raised about whether or not the statute [required] a rate cap for new business,” she said.

Citizens’ rationale for uncapping rates is that the 2009 law specifically addresses rate “increases,” so new customers should not be covered.

The plan — which still has to receive board approval before advancing — would have varying impacts for homeowners in different parts of the state, according to data prepared by Citizens’ staff.

The cost of a new homeowners’ policy in parts of Miami-Dade County, for example, could increase by more than 95 percent. A Hialeah homeowner who joins Citizens next year might pay a $1,950 premium, while a neighbor with similar coverage pays $1,000.

In Hillsborough County, rates could increase by up to 10 percent. Pasco County wind-only policies could jump by 31.6 percent. Some policies — mostly condo owners — would become cheaper under the proposal.

Citizens sees uncapping rates as a way to raise more revenue to cover expenses if a storm hits, and help make state-run insurance less attractive when compared to the private market. With more than 1.4 million policyholders, the bulk of whom are located in South Florida and the Tampa Bay area, Citizens is the state’s largest property insurance company.

Gov. Rick Scott has asked the board of Citizens to look for ways to reduce its exposure and shore up its finances.

Citizens estimates that uncapping rates would bring in about $100 million in additional revenue each year, with average premium increases of 30.5 percent for new customers. In some counties, new customers have made up as much as 70 percent of all Citizens’ business in recent years.

Additionally, Citizens is pushing plans to automatically drop certain homeowners — in sinkhole-prone counties, for instance — and then re-approve them after an inspection or renovation. When those homeowners rejoin Citizens, they would be doing so at the “new customer” rate, potentially costing them hundreds of dollars in higher premiums.

They would join a growing chorus of frustrated homeowners whose rates are skyrocketing under Citizens’ new risk reduction campaign, often more than the 10-percent rate cap.

Stuart Ledis, a Palm Beach County man who was dropped by a private insurer and forced to buy Citizens coverage, said his premium has increased from $2,800 to $5,400 since February.

“I don’t know how they get away with this,” he said. “We’re not even three months into this and they’ve already raised our rates three times.”

Rate hike by state-run Citizens would send more policies to private market

If Florida’s property insurer of last resort takes action to raise rates for new customers, other carriers say they’re ready to compete for those policies — at the right price.

“There’s going to be a pretty significant opportunity in the next few months to see what the private market can do,” said Sam Miller, executive vice president of the Florida Insurance Council, an industry trade group. “But so much of it is about rate.”

Citizens Property Insurance Corp. is exploring the idea of eliminating a 10 percent cap on rate increases for new customers starting Jan. 1. Board members failed to adopt the plan April 26, but directed staff to study the measure further.

Florida has 400 private carriers registered to offer property insurance in the state. While many have dropped policies along the coast, windstorm coverage from private insurers is available to homeowners in Broward and Palm Beach counties, typically if their homes are west of Interstate 95, in good condition and built no earlier than the 1990s, insurance agents say.

In recent years, those homeowners have gone with Citizens because the rates have been more competitive than those of other carriers.

Some insurers don’t do business in Florida because the rates the state allows them to charge are too low for the risks they have to assume, said state Sen. Mike Fasano, R-New Port Richey.

“Companies are not going to write business when they know going in that they’re going to lose money,” said Locke Burt, president of Security First Insurance, an Ormond Beach-based carrier with 160,000 policies statewide, including about 16,000 in southeast Florida.

A study by Security First showed that customers who left the carrier for Citizens saved on average about $100 a month. Still, policyholders will find more complete coverage and better claims handling in the private market, and there’s no “stigma about being in the state pool,” Burt said.

Gov. Rick Scott has ordered Citizens to shed policies, saying its ability to levy post-storm assessments is a threat to the state’s economy.

Proponents of the plan to remove the 10 percent cap say that move, with other measures to reduce coverage for existing policyholders, would make Citizens less desirable and cut the state’s risk if a hurricane were to strike.

The state-run insurer has more than 1.4 million policyholders, including about 347,000 in Broward and Palm Beach counties.

Citizens has tightened eligibility for discounts the insurer grants for windstorm protection measures, such as shutters. It also has cut its maximum coverage limit to $1 million from $2 million for homes and condos.

In addition, the insurer no longer offers coverage for such things as awnings, most carports and screened-in pool enclosures.

But no matter what steps Citizens takes, it will only be able to cut so many policies, said Jeff Grady, president of the Florida Association of Insurance Agents. Either the properties are too risky for other insurers or the rates Citizens charges are too attractive for homeowners to consider leaving.

“I’d say 700,000 to 750,000 policies may not ever get out of Citizens,” Grady said. “There is a core that will always be there.”

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.

There’s nothing wrong with Citizens Property Insurance wanting to cut 678,000 customers from its rolls to improve its financial position.

When another big hurricane hits the state, everyone in Florida with an insurance policy will be on the hook for billions of dollars if the state’s publicly held insurance company can’t meet its obligations to its 1.4 million customers.

But the way Citizens is going about meeting that goal should cause every one of its policyholders to worry. Some of the policy changes are too drastic, and many Citizens customers could find themselves paying more for less coverage. The problem is not the goal itself, but rather the way the company is going about it.

Florida has not managed to establish a viable, affordable windstorm-insurance system in the private sector since Hurricane Andrew hit the state in 1992. Most areas along the coasts — the Keys or east of U.S. 1 and I-95 in Miami-Dade and Broward counties — were effectively redlined.

Enter Citizens. Designed to be the insurer of last resort, it has become instead the largest property-insurance company in the state, and it has never been able to create reserves or reinsurance funding strong enough to cover another Andrew, or a series of back-to-back storms.

Citizens has a duty to try to avoid the havoc that would result if that were to happen. Making its rolls smaller gets it there.

As reported in The Miami Herald last week, however, the aggressive “depopulation” plan is flawed in several ways.

Most Citizens policies cover both windstorm and homeowners insurance. A major problem is the decision to limit personal liability coverage from $300,000 to $100,000 in new Citizens homeowners’ policies because this amount is completely insufficient.

Securing better coverage in the private market is a cumbersome process, often much more expensive. Some homeowners could wind up with a company that does not have sufficient resources of its own. Reducing liability coverage could well result in flooding the private marketplace, which is badly undercapitalized.

To avoid hardship, Citizens should charge a higher premium to make the coverage profitable, but don’t make the homeowner go out and buy a separate policy.

Ultimately, it could be self-defeating. Because so many private companies refuse to write windstorm policies, Citizens will shed the less-risky homeowners’ portion but still be left holding windstorm policies private insurers won’t touch.

A second problem involves reinspection for mitigation credits. There was widespread fraud in the original inspection process, but honest homeowners find it next to impossible to contest the results of a reinspection that results in steeply higher premiums, even if they’re ultimately proven right.

Nor is it fair to charge customers for the initial mitigation inspections — not to mention the cost of improvements — and then change the rules in order to raise premiums. If reinspection uncovers flaws in the first review, a higher premium may be required. If not, the rate should stay the same. Homeowners struggling through tough economic times should not have to bear this burden.

For 20 years, private companies have been fleeing high-risk areas where they believe it makes no sense to underwrite homes. Citizens is unlikely to lure big, financially sound companies back into Florida just by tossing their own customers out of the state pool and hoping they can find coverage somewhere else.

Citizens Property Insurance has some new ambitious goals: Move as many as 678,000 policyholders out of state-run insurance and once again become the “insurer of last resort.”

Its strategy: Enact a flurry of policy changes that will undoubtedly raise premiums and reduce coverage for thousands.

Citizens, which unveiled the aggressive “depopulation” plan this month in a revised budget proposal, says it is doing so to prevent statewide financial havoc in the wake of a major hurricane.

“Citizens has the ability to levy assessments (hurricane taxes) on almost all Florida policyholders in the event of a deficit after a storm,” spokeswoman Christine Ashburn said in an email. “The long term goal will continue to be returning policies to the private market, which is ultimately how we can reduce the reliance on assessments.”

But some homeowners have already been impacted by the first wave of Citizens’ campaign to drastically reduce its size and shore up its finances.

Patricia Temple, of Coral Gables, is bracing for a $2,150 premium increase this year, after Citizens sent an inspector to her home and decided her payments were too low.

“I have to do what I have to do because I [can] not be without insurance,” said Temple, who is 79 and retired. “But I don’t understand how they can do this if the Legislature put in a 10-percent cap on rate increases.”

Temple became a Citizens client after Liberty Mutual, her insurer of 50 years, dropped her. Though she says has not made a property insurance claim in five decades, Citizens raised her rates by 50 percent.

Stories like Temple’s are echoed by thousands of policyholders who say they’ve seen costs suddenly spike despite never making a claim or experiencing hurricane damage. Under a sweeping re-inspection program, Citizens has sent inspectors to 158,000 buildings in the last two years. As inspectors check roofs and windows, more often than not, they find something that translates into higher premiums, with an average increase of nearly $900.

Another 209,000 inspections are scheduled for this year, and Citizens recently proposed a new $50,000 contract for a new study of wind mitigation credits. The study is likely to lead to premium increases, and Citizens board member John Rollins indicated the return on investment for the study would be measured in millions of dollars.

Sean Shaw, founder of Policyholders of Florida, said that money will ultimately come out of the pocket of hard-working homeowners, who are paying more for less coverage.

“People are at such a disadvantage when Citizens does this,” he said. “It’s like they’re treating people like data points.”

Despite recent moves to reduce wind mitigation credits and raise rates on sinkhole coverage, Citizens has not experienced any significant reduction in size (the insurer swelled from 800,000 policies in 2007 to more than 1.4 million today).

Citizens’ depopulation push will soon go into overdrive, with several hard-charging coverage changes set to kick in over the next 18 months. Ideally, Citizens would like to shrink by 45 percent to 794,308 policies in the very near future.

With private insurers still wary about the Florida market, it’s not clear where 678,000 current policyholders will go for coverage when contracts end with Citizens.

Citizens’ theory is that its artificially low rates discourage private insurers by making the market uncompetitive. It’s banking on more private insurers picking up the slack as it depopulates.

Here are a few of the changes that begin Tuesday for Citizens policyholders:

•  Homeowners who need to join Citizens will have to submit written proof that there is no private insurer able to provide affordable coverage for their home.

•  Builders’ risk insurance for new homes will no longer be offered by Citizens.

•  Coverage for carports, screened enclosures and fences will end for renewal policies.

•  The personal liability coverage limit will decline from $300,000 to $100,000.

The push to depopulate is set to intensify in the months ahead, and those with Citizens coverage can expect to be impacted by at least one of several policy changes being proposed. Among them:

•  Uncapping rates for new policies, causing new policyholders to pay as much as 50 percent more than existing customers for similar coverage.

•  Requiring new electrical and plumbing inspections for older homes.

•  Requiring new inspections and likely higher premiums in sinkhole-prone counties.

•  Increasing deductibles for “all other perils” coverage.

Most of the changes are being enacted without the Legislature, which this year declined to pass major property insurance reform.

With hurricane season set to begin in a month, Citizens says it must tamp down its level of risk in order to avoid financial calamity for all consumers.

While the company has been able to build up a surplus of more than $6 billion during a 6-year streak without a major storm, financial models show that a large hurricane this year could wipe out those funds and other resources.

That would lead to assessments for Citizens’ customers and potentially for all insurance policyholders in the state.

That’s why the Citizens board of directors, with the support of Gov. Rick Scott, is trying to attract private insurers back into the market by shrinking Citizens as quickly as possible.

“It is important that Citizens work towards having adequate rates to reduce the likelihood of assessments on all Florida policyholders,” said Ashburn.

Some say those private insurers are never coming back, particularly in the state’s high-risk areas where it doesn’t make financial sense to underwrite homes.

“We’d all love to see the depopulation of Citizens, but guess what? The private companies are not coming back to this area,” Sen. Mike Fasano, R-New Port Richey, told Citizens’ executives last week. “Please, please, leave the people alone that are struggling.”

Florida officials have taken a welcome and overdue step to downsize Citizens Property Insurance Corp., the state-created insurer.

The company has seen its customer base expand to 1.5 million Floridians with more than $500 billion in exposure. Citizens is supposed to be the state’s insurer of last resort. In this case, bigger clearly is not better.

What the exposure could have meant is that a customer of a private property insurance company would have had to pay about $300 had a major storm swamped Citizens with claims. In other words, private-sector customers would have to help pay the claims of a state-run agency.

Having private insurance customers subsidize risk for the state-run agency is bad public policy. Citizens has grown too large to pay potential claims in the event a few big hurricanes hit Florida in one season.

Yet the Legislature has been in no hurry to reform Citizens and help to reinvigorate the private property insurance market. But lawmakers did take an important step in that direction in the 2012 session.

Gov. Rick Scott, who had signaled he was going to tame the beast, made some headway. The Legislature passed, and Scott signed, House Bill 1127.

Perhaps the best news about the bill is that regular assessments made on private insurance accounts will be capped at 2 percent, down from as much as 18 percent. That will encourage more people to buy property insurance in the private insurance market.

How we got here is understandable. Two nasty hurricane seasons in 2004 and 2005 — with the topper being Hurricane Katrina — caused property insurers in the Gulf Coast states to fear they were in over their heads. The claims for sinkholes in Florida also made private insurers wary.

Some insurers left, refused business or went out of business. In Florida, that left Citizens, the state’s insurer of last resort, to soak up the business.

The 2004 storm season accelerated the problem. And politics finished the job, with Citizens becoming a political issue in the 2006 gubernatorial election. In 2007, newly elected Gov. Charlie Crist and the Legislature passed a law expanding Citizens and freezing its rates. This caused a rapid growth in enrollment in Citizens. In May 2007, the Property Casualty Insurers Association of America issued a report saying that Citizens policy could lead to big deficits in paying claims if a major hurricane hit the state, and that would mean forcing insurance customers outside of Citizens to cover the costs.

The soundness of Citizens is an issue the Legislature revisits from time to time, but many warnings have gone unheeded. Indeed, in response to the May 2007 report by the insurance industry, Crist said, “They’re greedy. Let’s face it.”

Insurers’ alleged greed won’t be the first concern of Floridians if the state is hit by a few big storms. The Sunshine State has had remarkably mild hurricane seasons the last several years. That could change in just one season, and that would cost Floridians billions if Citizens runs deficits.

The Legislature and Scott should therefore keep working on reforming and shrinking Citizens. Florida residents need to be sure that Citizens can cover claims should a big storm, or several storms, hit.