A coalition of business and consumer interests are pushing for rapid approval of a plan floated by Citizens Property Insurance Corp. to speed its depopulation efforts by offering loans to private insurers made out of Citizens’ own surplus as an incentive to take out Citizens policies.
In something of a strange bedfellow coalition, the Associated Industries of Florida, Consumer Federation of the Southeast and the Florida Association of Insurance Agents have joined with state Sen. John Thrasher, R-Jacksonville and House Insurance and Banking Subcomittee Chairman Bryan Nelson, R-Apopka, to urge Citizens’ Board of Governors to approve the proposed Surplus Note Depopulation Program. The groups hosted an Oct. 4 press conference on the matter, ahead of a scheduled Oct. 9 meeting of the board’s Depopulation Committee in Orlando.
Under the plan, Citizens would lend up to $350 million of upfront capital to private insurers in the form of 20-year surplus note loans, in the process removing some 300,000 policies from its current book of 1.5 million. Advocates claim the plan would reduce the likelihood of emergency hurricane tax assessments to finance Citizens’ claims by 38%, and to reduce the potential assessment amount – which could reach as high as $3 billion — by roughly $1.2 billion. As the groups put it in a joint statement:
Hurricane taxes on non-Citizens policyholders could reach 32% of their annual premium for one year. That tax could be as high as 45% for Citizens policyholders. The average per policy premium in Citizens is $2,269. Therefore a customer who is removed from Citizens could avoid the first round of Citizen policyholder assessments in the event of a 1-in-100 year storm, effectively avoiding a hurricane tax that could reach $1021.
If these taxes do not cover the deficit in Citizens reserves, all property insurance policyholders could be taxed up to 30% of their premium for as many years as it takes to cover the deficit. Hurricane taxes can also be imposed on other insurance policies and also by the Florida Hurricane Catastrophe Fund.
To accomplish a similar reduction in exposure through traditional risk transfer, Citizens would have to purchase an additional $240 million annually in reinsurance, whereas the hope for the SNDP is that the shift will be somewhat more permanent.
Prior depopulation attempts haven’t succeeded at making a significant dent in Citizens’ policy count, which continues to grow by some 30,000 a month. But the new plan looks to address some of the faults of prior rounds of depopulation. For instance, take-out companies will be subject to enhanced capitalization requirements, thus hopefully avoiding the problem the state saw several years ago when several thinly-capitalized domestic insurers that had taken on Citizens policies ended up insolvent.
Alas, some of the perennial problems remain. Policyholders whose coverage is taken over by a private company can opt-out and choose to remain with Citizens. Moreover, the take-out policies will, for the first three years, continue to be subject to Citizens’ annual 10% cap on rate increases. The fact that the cap does expire after three years is a major step forward, and it is precisely because the policies are priced at below actuarially indicated rates that the loan program is necessary. But until Citizens itself is made to implement responsible, actuarial rates across the board, there is little to prevent any take-out customer from ending up back in the pool from whence they came.
So, the program is no panacea, by any stretch, but it would mark a step forward. When you consider that the likes of state Insurance Consumer Advocate Robin Westcott, Chief Financial Officer Jeff Atwater and state Rep. Frank Artiles, R-Miami, have all called on the board to slow down its consideration of even this very modest plan, the emergence of a broad coalition of support from players who often have strong reasons to disagree on policy matters has to be considered a good thing.