A special task force is recommending that Florida’s state-backed property insurer – Citizens Property Insurance — be permitted to raise its rates beginning in 2010 and that restrictions on what homeowners it can insure be more tightly enforced.
The panel of elected and appointed policymakers also wants to block Citizens from insuring any new homes or condominiums built in high risk coastal areas. These property owners would have to find insurance in the private market.
Citizens has become the largest home insurer in the state, in part because its rates have been frozen by law since 2007, making it cheaper than private coverage in some instances. It now has about 1.1 million policies. That’s down from a high of 1.4 million due to an influx of private carriers and concerted efforts to get homeowners to accept private coverage. But many, including insurers, think Citizens is still too big.
The panel voted to allow the current freeze on Citizens’ rates to expire and that Citizens be given the green light to file for rate hikes. But to avoid big spikes in rates for policyholders in any one year, the task force wants any future rate increases capped. Future increases for Citizens would have to follow a “glidepath” under which the overall statewide increase would be no more than 10 percent in a year; any rate increase by territory would be capped at 15 percent a year; and any increase per policy would be no more than 20 percent.
Citizens’ rates would be subject to approval by the Office of Insurance Regulation.
In addition to tackling pricing, the task force looked at some of the rules governing who is eligible to be insured by Citizens. One of these eligibility rules, known as the “15 percent rule,” lets homeowners qualify for Citizens coverage if their private quote is more than 15 percent higher than the Citizens premium.
The task force rejected a proposal for repeal of the 15 percent rule but did decide the rule should be enforced more closely by requiring agents and policyholders to actually certify that they could not find a private policy priced less than 15 percent above Citizens.
In another recommendation, the task force took aim at an unusual Florida law that bars agents from discussing the state’s guaranty fund with consumers. The task force urged lawmakers to repeal this law. The guaranty fund steps in to pay claims up to $500,000 if an insurance company becomes insolvent.
The task force is also recommending expansion of the state’s voluntary market assistance plan (F-MAP) through which private insurers scan Citizens accounts for ones they would like to write. The proposal would make more of the data available to insurers as many as 120 days before a policy is set to renew.
The task force’s work is not done and another meeting is planned for Jan. 22 before it is supposed to issue its final recommendations to the Legislature on Jan. 31.
The task force ideas thus far – if adopted by the Legislature– should help reduce the size of Citizens but they stop short of scaling back Citizens to being strictly an insurer of last resort for homeowners unable to find private coverage at any price from private insurers.
Insurers wish the task force had taken other steps to shrink Citizens but they acknowledge that the task force members inherited a tough job.
“We probably would have hoped they would have gone further than they did but these are very substantive recommendations and given the politics, these are tough issues,” said Sam Miller, chief executive for the Florida Insurance Council, which represents insurers in the state.
The task force has not yet addressed several matters. Chief among them are rules governing so-called “takeouts” under which private insurers offer coverage to property owners already insured in Citizens. Currently, property owners are under no obligation to accept the takeout offer from any private carrier, although close to 400,000 did so in 2008. One proposal before the task force would require policyholders and their agents to accept any takeout offer as a way to further depopulate Citizens.
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