Facing protests from consumers and state officials, Florida’s state-run homeowners insurer has found itself defending a proposal to increase rates for new customers above a legislative cap placed on current business.
Citizens Property Insurance Corp. officials floated the proposal last month to increase rates for new policyholders above rates for current policyholders as part of an overall strategy demanded by Gov. Rick Scott that the insurer reduce its book of business and become less competitive with the private market.
Under current law, the insurer is only allowed to increase rates on new and renewal business by 10 percent annually, part of a glidepath mandated by state lawmakers that is supposed to eventually make Citizens rates more actuarially sound.
However, with the insurer’s rolls at 1.45 million and counting, no one knows when or if the 10 percent cap will meet its goals.
Citizens Chief Financial Officer Sharon Binnun said the latest proposal would raise the insurer’s coastal rates by a statewide average 55 percent and inland policy rates by an average of 19 percent. That translates into about $100 million in additional premium.
However, she cautioned that those numbers would likely change since the insurer would not have an actuarial report on its rate needs until next month. It also includes a number of other broad assumptions such as there being a decrease in new business as more policyholders opt to go with private insurers.
“We really need a lot more information,” said Binnun.
Binnun said the insurer is prepared to hold a workshop on rates July 16 in preparation for a Citizens board of governors meeting on July 27.
The issue is also expected to come up when the Citizens holds a depopulation summit on June 1.
Media Coverage Criticized
Citizens officials appear to be sensitive to the public reception of any plan that could significantly increase rates, especially given the reaction to a plan last year to raise sinkhole rates by a statewide average 400 percent. The proposed sinkhole increase triggered protests by state lawmakers and consumers. Insurance Commissioner Kevin McCarty eventually stepped in and capped the sinkhole rate increase at 32 percent, a decision Citizens agreed to.
News of the potential change in rates on new policies above the 10 percent has already drawn the ire of lawmakers and the public.
Florida House Majority Leader Carlos Lopez-Cantera fired off a letter to Citizens saying, the plan being discussed to increase Citizens premiums for new customers “would be a blatant circumvention of state law and not in the best interest of the state of Florida and its residents.”
Florida Chief Financial Officer Jeff Atwater also informed Citizens officials that it was not his intent to allow new policyholders to pay higher rates when he shepherded the insurer’s rating law through the legislature when he was Senate President in 2009.
Some Citizens actuarial committee members pushed back against those criticisms, arguing they are premature and noting that even if they supported higher rates on new business it was not a decision Citizens could make unilaterally.
The committee members were also sharp in their criticism of the media’s coverage of the current rate discussion that they said unnecessarily created a wave of concern among policyholders.
Citizens official John Rollins was especially critical saying the “media is hyperventilating.” He stressed that there are no formal plans and that none would come until after the insurer developed it actuarial estimates this summer.
“Those decisions are not here yet,” said Rollins. “I’m not going to support a 60 percent or 90 percent increase in one year on a single policy. It is not going to happen.”
Citizens Chair Carlos Lacasa also criticized the media, saying many of the news reports were “grossly exaggerated.”
He also said the legislature needs to be more involved in the discussion to avoid a replay of the sinkhole crisis.
“The legislature needs to be more engaged and understand that without getting the buy-in of every stakeholder the problems are not going to get solved,” said Lacasa.
Board member Tom Lynch also called on state regulators to be more responsive in acting on private companies’ rate requests, which would encourage them to enter the market.
He also said state lawmakers needed to act to shore-up the Florida Hurricane Catastrophe Fund, which could face a $1.8 billion shortfall if the state sustains significant hurricane losses this year.
“The Cat Fund has to have the capacity companies need,” Lynch said.
In addition to rates, Citizens has been cutting back on coverage including limiting its policies on high value homes to $1 million, increasing deductibles, and cutting personal liability coverage limits. The changes are credited with slowing the rate of new policies entering the insurer, where number of policies has hovered around 1.4 million for months.
Inspection Program Yields Result
Board members were also presented with data showing that Citizens inspections of wind mitigation credits has resulted in more premiums after finding that policyholders didn’t qualify for the credits.
As of April 30, inspectors had completed more than 180,000 inspections, of which nearly 62 percent had their credits removed or modified downward. Those policyholders saw their premiums increase by an average of $600. As a result, the insurer is expected to collect more than $100 million in additional premiums, a number that is expected to grow when it completes an additional 100,000 inspections later this year.
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