Harsh Medicine in South Florida

By | July 19, 2012

The Citizens Property Insurance Corp.’s governing board convened a workshop in Miami this week to address various issues facing the state-run insurer, including its inadequate rates, ballooning book of business and recent complaints about how the company is going about its reinspection program.

After opening remarks by Chairman Carlos LaCasa, newly appointed Citizens President Barry Gilway addressed the board, staff, and about 60 members of the public. He said the company subsidizes homeowners by charging rates that are less than what the private market charges, including extreme cases of about 150 percent rate inadequacies in counties with the highest Citizens policyholder populations.

On a statewide level, Citizens rates on average are about 15 to 27 percent lower than they should be, which explains why Citizens has grown to 1.44 million policies. Despite these inadequacies, Gilway reiterated moving in a “measured manner” to bring the rates to where they should be.

Chief Financial Officer Sharon Binnun followed Gilway’s remarks with an update on Citizens’ rate filings and its losses over the past year. Specifically, she says that Citizens is expected to file a statewide average rate increase of 7.5 percent, which will account for approximately $173 million in additional premium in 2013. She explained the increase is below the 10 percent glidepath cap because there are parts of the state that are due for a reduction in rates. She did mention, however, that the appropriate average statewide rate increase would have been 21.1 percent had it not been for the 10 percent cap. Binnun also reported that coverage changes implemented by Citizens—including those that eliminated coverage for dwellings over $1 million—have had a positive effect in reducing losses. Also, the provisions in Senate Bill 408 enacted in 2011 are expected to reduce sinkhole losses by 54 percent.

Members of the public also chimed in during the workshop, including state Rep. Frank Artiles, R-Miami, who urged the board not to raise rates on South Floridians, but instead suggested they raise rates on the rest of the state to match those in South Florida. This, he says, would help depopulate Citizens of policyholders who could find cheaper coverage in the private market, unlike South Floridians who he says have no other choice but to insure with Citizens.

Artiles was followed by about 10 South Florida residents who railed against Citizens’ efforts to raise rates and their recent program to reinspect homes that receive discounts for hurricane shutters and other storm mitigation. Some complained that inspectors unfairly revoked their mitigation discounts, which drastically increased their insurance premiums.

Citizens President Gilway said he took public’s comments seriously and that perception of the company’s reinspection program is “critical.”

Unfortunately, it seems as if South Floridians’ negative perception of Citizens is not limited to its reinspection program. Those who railed against Citizens and the rates it charges in South Florida were met by strong applause from members of the audience.

This workshop illustrated once again that insurance is hardly an easy topic to explain, especially in a place like South Florida where it represents a major cost of living. However, Citizens (and those of us who favor reforming it) must find a way to effectively communicate why rates must go from high to higher. Jargon such as “actuarial soundness,” “PML,” and “loss ratio” does little to explain to residents why they have to pay more for property insurance when they perceive that their insurers have been “racking up” money for seven hurricane-free years.

Until proponents of reform find a better way to explain the correlation between risk and the cost of insurance, and the dangers of an underfunded insurance system, the current political opposition will make necessary reforms nearly impossible to enact.

Right now, all the patient knows is that the medicine is harsh. Until he knows that he requires it for his own good, he’ll refuse to take it.

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