Florida Lawmakers Advance Plan to Shrink State Insurer Citizens

Florida lawmakers have approved a plan designed to move more property owners into the private insurance market by restricting what properties the state-backed insurer can cover and allowing it to raise its rates.

By a vote that fell along party lines, six Republicans lined up against four Democrats to push a bill (CS\SB 1714) through the Senate Banking and Insurance Committee, while the House Insurance Committee approved a similar bill (HB 1243) sponsored by Rep. Jim Boyd (R-Bradenton).

The votes all but assure the bill will pass the full legislature in some form this year.

Under the bill, the state-backed Citizens Property Insurance Corp. would be prevented from insuring high-value homes and would no longer offer commercial non-residential coverage. Starting in 2015, homeowners would be able to get coverage from Citizens only if private market coverage cost 25 percent more than Citizens. Also, Citizens could raise its rates 20 percent a year.

At the same time they are trying to shrink the state insurer, the lawmakers voted to require Citizens to make available coverage for sinkholes.

Citizens is the state’s largest homeowners’ insurer covering some 1.3 million policyholders, a distinction it will likely retain given the present state of the private market where at best most insurers are trying to hold on their current book-of-business. Faced with that situation, lawmakers are trying to reduce Citizens’ exposure by clearing the way for higher rates while scaling back its current coverage options.

Senator Alan Hays (R-Umatilla), who sponsored the legislature, said the bill is a necessary component of the legislature’s overall property reform effort. He believes this bill, along with the main homeowners bill (SB 408), will clear the way for private insurers to return to the state. “I contend that the private market will work in concert to come back into the state if we address these cost drivers,” he said.

At the core of the debate is the fact that while Citizens has been spared from any great losses due to several years without hurricanes it still heavily relies on policyholders’ assessments to pay claims. Citizens’ official Candice Bunker told the committee Citizens has $5.4 billion in cash, the ability to access the Florida Hurricane Catastrophe Fund for another $6.5 billion and $2.9 billion in reinsurance. Beyond that $14.6 billion is a web of surcharges and assessments that would be needed if the insurer ran a deficit or hit its maximum for a one-in-one hundred year storm of $22 billion.

Senator J.D. Alexander (R-Gainesville) noted that the $14.6 billion figure is roughly half the state’s entire debt. He also noted that given the current national economic the prospect of raising money for claims through bonds is not as favorable as it once was, especially since the state’s hurricane fund would likely be in the bond market at the same time. “I think it is unrealistic to think we could raise that money in a timely manner,” he said.

Faced with that scenario, lawmakers are considering two approaches, increasing rates and reducing Citizens’ exposure. This year, actuaries calculated that Citizens needs a 48 rate percent increase just to keep up with its current exposure, but it received only a 10 percent increase after having its rates capped in 2009. Under the bill, the 10 percent cap would be replaced by a 20 percent cap.

Senator Mike Fasano (R-New Port Richey), who has become a leading voice against both property bills, took his Republican lawmakers to cast for proposing a new rate limit in perpetuity. “We are a Republican legislature because our constituents wanted Republicans running things up here,” he said. “And every time we come here we increase rates and surcharges while not talking about taxes and fees.”

Hays responded that lawmakers for years has relied on a “pay later” policy when it comes to Citizens, which he noted worked if the state was lucky enough to avoid any major hurricane losses. However, he said, the legislature had a duty to at least try and increase rates to hopefully avoid some deficits. “What would we rather do, explain to our constituents why higher rates occurred,” said Hays. “Or wait to their roofs blow off and then explain these assessments.”

Under the bill, Citizens would no longer offer commercial non-residential coverage, which currently is extended to 8,700 policyholders. As of January 1, 2012, the insurer could no longer insure homes valued at more than $1 million, which will be followed by a $750,000 limit in 2014 and $500,000 in 2016. Starting in 2015, residents would only qualify for coverage if the only other coverage they could find exceeds Citizens rates by more than 25 percent.

But while lawmakers are closing the door to Citizens on one end, they are potentially opening it on the other. Unlike the property bill that eliminates the mandate on insurers that they cover sinkhole damage, Citizens would have to. The bill does specify that the coverage doesn’t include driveways, sinks, decks and patios, while placing limits on what private adjusters are paid.

Hays said he believes the private market would eventually agree to assume the coverage once both property bills are enacted. He said the mandate was a “Plan B” to make sure sinkhole coverage was at least offered in the state. Several lawmakers, however, found that scenario rosy at best. “It doesn’t take a second grader to see this will grow Citizens,” said Senator Gwen Margolis (D-Miami).

Topics Florida Carriers Legislation Property Hurricane Homeowners