Barry Gilway was appointed president of Florida’s Citizens Property Insurance Corp. just a few weeks ago and already he is making public statements about how he intends to restore the state-owned company’s finances. Although he indicated from the very beginning that raising rates would be a key component of any effort to shore up Citizens’ reserves, questions were left open about how much rates would go up and over what amount of time.
Gilway recently answered questions about how he intends to right-size Citizens and get it on steadier financial footing, in order to avoid levying enormous post-hurricane assessments on just about every Floridian. He said he intends to reduce the company’s policy count — which currently numbers 1.5 million, making the former “insurer of last resort” the largest property insurer in Florida — by about 400,000 policies over the next three years.
Although Gilway admits Citizens is forecast to cover almost all of its obligations following a catastrophic 1 in 100 year storm, it is able to do so only by borrowing about a quarter of the money it needs, which is paid back through the aforementioned assessments. So to avert a dramatic rate increase, Gilway plans to increase deductibles and to offer coverage that only pays the value of a home if it is destroyed instead of the cost to replace it, which is usually much higher. He also intends to reduce costs and crack down on fraud:
“To really focus on getting closer to rate adequacy, we not only need to address rate, we need to address fraud, we need to address loss costs. So we need to focus as intensively on how we get our costs down, how we get the claims count down and how we lower our claims load in addition to the other element which is, of course, increasing rates.”
Gilway also is expressing interest in trying to work with agents and draw more private carriers to assume inland “Personal Lines Account” policies, an area where Citizens has seen disproportionate growth in recent years.
“Step number one is getting the PLA policy counts down to where they were at least two-and-a-half or three years ago,” Gilway said. “That’s where the huge increase has occurred, and that provides the greatest opportunity to provide financially viable alternatives for our insured.”
These solutions are definitely steps in the right direction, albeit small ones. They undoubtedly will help Citizens save much-needed cash after a bad hurricane season, which minimizes the risk or severity of those dreaded post-hurricane assessments, which on their own could have a crippling effect on the economy.
Ultimately, however, the solution lies with charging an adequate premium; that is, rates that are sufficient to cover the risk. Doing so will not only shore-up Citizens’ finances and reduce the likelihood of assessments, but it will also restore the state’s insurance market, which for too long has been distorted by artificially low rates that have stifled competition and driven away private companies.
But to immediately impose “adequate” rates on Citizens policyholders would undoubtedly shock Florida’s insurance market, not to mention make it a lot more expensive to live and do business in a state whose economy is only now showing signs of a cautious rebound. Gilway told the Florida Cabinet that he won’t make a decision on rate recommendations to the Citizens board until after a July 16 workshop on rates.
Gilway seems to understand this, and his moderate approach to a required increase in rates coupled with other money-saving reforms is not only politically correct, but also economically sound.