It’s been years since a major hurricane has hit Florida, and the good news for Floridians is that property insurers are filing applications to write policies in the state again.
But there’s a plan being hatched by the board of Citizens Property Insurance, the state’s insurer of last resort, that could be bad news for the industry – and in turn, for ratepayers.
In early September, Citizens’ board voted to award $350 million in low-interest, forgivable loans to a handful of private-sector insurance companies as an incentive to take hundreds of thousands of Citizens’ policies.
This plan is bad for business in our state for three reasons:
1. First, the incentives aren’t needed. Private insurers already plan to take more than 300,000 policies from Citizens this year alone – with no incentives. Consequently, handing out this incentive money, Citizens’ surplus – funds that will be needed if a major storm hits – will be depleted for no good reason. Not to mention the policies included in this proposed plan are extremely attractive to private insurers without incentives, because these are some of Citizens’ best policies from a risk perspective.
2. Second, this plan eliminates a level playing field for insurers coming into the state. Citizens’ board came up with the plan with no input from the Legislature, the industry, or ratepayers, and plans to push it through regardless of public sentiment, which is overwhelmingly against the idea.
3. And third, virtually none of the insurance companies in line to take the policies have been audited in at least three years by regulators. Floridians have no assurances that these insurers – several of which have had massive underwriting losses over the past five years – are financially healthy enough to withstand storm losses.
Wouldn’t it be better to have open competition, so the healthiest insurers offering the best business plans get the policies?
Under the Citizens loan program, private insurers could borrow up to $50 million for 20 years at a low interest rate of 2 percent. In return, Citizens obligates the insurers to take the policies for only 10 years, and allows them to raise rates beyond 10 percent a year, after three years. Additionally, the program fails to include provisions for what happens if the insurers encounter financial difficulties that could prevent them from repaying a loan.
Unfortunately, Citizens’ board doesn’t seem to care about the public’s interests or in doing its part to create a healthy property insurance market going forward. Instead, the board only seems interested in making inside deals that run counter to free market principles and fairness.
Certainly, Citizens needs to aggressively reduce the number of policies it carries. However, this proposed plan neglects to do so in a responsible, impartial manner.
A plan of this scope, which would greatly shape the Florida property insurance industry for the coming years, must to be properly vetted and analyzed before enactment. Instead, Citizens’ board seems to be focused on moving forward with a decision influenced by lobbyists that smacks of an insider deal.
Florida House Rep. Frank Artiles (R-Miami) has a Masters of Law in Real Property Development from the University of Miami Law School and is a licensed General Contractor, public adjuster, property insurance appraiser and umpire.