Fla. Gov. Signs Law Extending Citizens Rate Freeze; Nixes Private Incentive

May 29, 2008

Gov. Charlie Crist has signed homeowners insurance legislation in Florida that extends for another year a rate freeze for the 1.2 million customers of state-backed Citizens Insurance whose premiums in some cases are already below private market rates.

In addition to continuing the Citizens rate freeze until January 2010, the bill increases from $1 million to $2 million the maximum value of homes that Citizens can insure and sets the stage for assessments against all car and home insurance policyholders if storm losses exceed the state's catastrophe insurance funds.

The law also hikes fines for insurance carriers caught violating state rules and revises the rate approval process to bar insurers from implementing rate changes while their filings are still under review by the state's Office of Insurance Regulation (OIR).

Crist vetoed a part of the legislation that would have provided $250 million to continue a program that provides incentives for small insurers willing to come to the state and write some of the business now placed with state-backed Citizens.

The private insurance industry has criticized the overall measure, including the rate freeze for Citizens with which private insurers have to compete for business.

"Citizens is getting deeper in the hole,'' said Sam Miller, vice president of the Florida Insurance Council, an industry group, earlier this month when the bill passed the House and Senate. "They clearly don't have the money now to pay its claims if we have a hurricane.''

All residents with a car or home insurance policy could be assessed if a catastrophic storm hit Florida and the state was unable to meet its financial obligations.

But lawmakers have indicated they think that taking that risk serves the public interest at this time.

"We've made a conscious decision to accept the risk,'' said Senator Jeff Atwater, R-North Palm Beach.

Florida Chief Financial Officer Alex Sink has expressed concern over raising the maximum home value that Citizens can cover because that means the state takes on even more risk.

Sink has also warned about the potential for a dramatic price spike for Citizens' policyholders once the moratorium on its rates expires in 2010.

Under a current program to attract more private insurers to write business, the OIR has been able to successfully place as many as 500,000 policies in 2008 in the private market and remove them from the state insurer Citizens.

"Having Citizens be the largest the insurer in the state was never a goal,'' said Sen. Jim King, R-Jacksonville, one of the sponsors of the provision in the legislation that would have funded a continuation of the Citizens depopulation plan. "We've got to figure out some ways to make it competitive enough that people buy it out.''

But in vetoing the provision, Crist said he opposed spending an additional $250 million in funds from Citizens for the program.

"The citizens of Florida are already feeling the heavy weight of property insurance and property tax burdens. I do not support risking an additional financial hardship," Crist stated.

The insurance industry had supported this provision.

The industry is not happy with other provisions, however.

The law signed by Crist extends to January 2010 a regulation requiring insurers to first obtain state approval before implementing property insurance rates. It also abolishes arbitration panels, which had the authority to approve rate increases denied by the Office of Insurance Regulation, and it mandates that insurers use Florida hurricane models when calculating rates.

The new law doubles the maximum fines for insurers caught violating state regulations.

Finally, the new law requires insurers to notify homeowners policyholders 180 days before dropping them and to pay undisputed claims within 90 days of deciding the amount of the payment.

Insurance Commissioner Kevin McCarty has said the new law contains important consumer protections.

"Specifically, stopping insurance companies from bypassing the Office [of Insurance Regulation] and increasing rates through the use-and-file or arbitration processes are very important provisions of this bill," McCarty said when lawmakers were considering the measure.