Funding for the Florida’s state-run property insurer is likely to change as state lawmakers are looking to access the insurer’s total assessment base quicker and give it more time to collect funds in the event of a deficit.
Citizens Property Insurance Corp. currently has a three-tier assessment scheme that is triggered in a sequential manner based upon any deficits in the insurer’s three separate property insurance accounts. The insurer has a personal lines account, a commercial lines account, and a coastal account.
Initially, following a deficit in an account, Citizens can assess policyholders up to 15 percent of their premium for a maximum total of 45 percent. If that assessment fails to cover the deficit, Citizens can levy a 6 percent regular assessment for a total of 18 percent on all personal lines policyholders in the private market. If further funds are needed an additional 10 percent emergency assessment can be levied.
Under current law, insurers must pay regular assessments upfront and the recoup them from policyholders. However, emergency assessments can be charged to policyholders within 90 days of a deficit and collected over as many years as needed.
Florida lawmakers, however, are looking to change that assessment scheme to reduce the per year assessment percentage on policyholders by giving them more time to retire any Citizens’ deficit while reduce the immediate financial impact on private carriers that under current law have to pay any regular assessment up front.
The Florida House of Representatives approved a bill (HB 1127), sponsored by Rep. Ben Albritton (R-Bartow), who said he merely wants to cushion the impact of assessments without affecting Citizens’ ability to pay claims.
“This bill in no way limits Citizens’ ability to pay their claims on time,” said Albritton on the House floor.
According to a Senate House of Economic Affairs analysis, the elimination of the six percent regular assessment on the private market means that Citizens policyholders would likely see higher assessments while policyholders in the private market would end up just paying the assessments over a longer period of time.
The bill’s primary impact would be on private insurers.
Since private insurers would no longer have to pay regular assessments –except for the two percent assessment in the coastal account—upfront, the change would largely eliminate any impact on the insurers’ net worth. Lawmakers are hoping this will reduce the chance that any insurer will go bankrupt.
Citizens’ officials indicated the bill would have no negative impact on its ability to pay claims in a timely manner. However, since the insurer would no longer collect monies upfront in the form of regular assessments, it may invest more monies in pre-event bonding.
At this time, it appears Citizens will have substantial financial resources entering into this year’s hurricane season.
According to officials, Citizens is expected to have a surplus of $5.7 billion, an amount that could be augmented by another $6.5 billion in reimbursements from the Florida Hurricane Catastrophe Fund. The insurer also has $575 billion in pre-event bonds that would cover losses located along the state’s coastline. In total, that gives Citizens roughly $12.8 billion in claims paying capacity before levying any assessments on policyholders.
That amount is expected to be able cover a 1-in-50 year storm.