5 questions with Bruce Douglas

Apr 28, 2008

Miami Herald--April 28, 2008


A wide-ranging insurance bill passed by the state Senate nearly two weeks ago contains substantial changes for the state-run insurer, Citizens Property Insurance.

There isn’t much good news for Citizens’ policyholders — 573,086 are in South Florida — but the bill contains some measures to make rate increases and future assessments a bit easier to bear.

Some provisions don’t sit well with Citizens executives, such as using $250 million of the insurer’s surplus to fund another round of a program started in 2006 to give young or start-up insurance companies a chance to pump up their capital. Even though the funds are structured as surplus loans to qualifying insurers and repaid over 20 years, Citizens believes the money would be better kept in reserve in its coffers, ready to pay future claims.

Another provision prohibits Citizens from writing wind-only policies after July 1. That doesn’t sit well with agents who claim higher rates and less coverage await consumers who have to buy a policy from the insurer. The Florida Association of Insurance Agents is aggressively lobbying to beat this measure.

A group of state lawmakers led by Rep. Dennis Ross, a Republican from Lakeland, and Sen. Jeff Atwater, a North Palm Beach Republican, have been negotiating over the last week to find common ground in the House and Senate on needed changes in insurance regulation.

Making the job tougher is that there was no House companion bill to the Senate proposal. The objectives in the Senate to revise insurance regulation — for the fifth time in four years — are nowhere near what state representatives would take on. With only one week left in the 2008 legislative session, it’s not a sure bet the two sides will be able to deliver an insurance bill before 11:59 p.m. May 2 when the session ends.

Bruce Douglas, chairman of Citizens’ board of governors, talked with The Miami Herald recently about the Senate’s bill and where insurance rates may be headed.

Q: The Senate bill extends the current freeze on Citizens rates through June 2009. Then Citizens is required to develop actuarially sound rates so that it can stockpile enough cash to pay future claims. How is that going to affect policyholders and Citizens’ surplus?

A: I don’t think premiums are going to come down any more. But I understand we need to have orderly and manageable increases in premiums over time. Citizens needs to build actuarially sound rates over time.

We suggested that they have a ”glide path” and do it over three years. People can plan ahead. This is what it’s going to cost and they can shop around and compare.

[The rate freeze through July 15, 2009] is going to restrict the growth of our surplus, but at least it’s something we can budget and plan for. We are now at $3.6 billion in premiums on annual basis. We should be at 30 percent more, close to about $4.6 billion. The only way we’re going to get there is through an orderly plan that people can adapt to.

Q: Would increases be limited to a maximum 10 percent per year on windstorm and multi-peril policies or is the percent just a statewide average?

A: That’s a statewide average. The increases will be greater in the high-risk areas of the state, so policyholders in areas like South Florida could see larger increases.

Q: Many insurance agents see bad consequences for homeowners if Citizens can no longer write wind-only policies. They contend consumers will see much higher rates and less coverage on a multi-peril policy from Citizens. In your view, are their objections valid?

A: That’s not true. The existing policyholders don’t have to choose. Only new policyholders can’t have a wind-only policy. There could be a slight increase. But they are still able to buy [a multi-peril] from someone else.

If a policyholder wants to insure art or jewelry, they can cover that. Even if we don’t offer it, [that coverage] is available [from other carriers] if they want it.

What is their objective in this very strong opposition? Are they trying to do something for the benefit of consumers or for the agents?

This does not negatively affect the consumer. It allows Citizens to have the benefit of the multi-peril policy and it precludes cherry-picking on the part of insurers that want none of the high risk and take only the [portion of the multi-peril policy with less risk and more predictable losses].

Q: So can Citizens spare that $250 million to fund the surplus note program?

A: I don’t agree with the portion of the bill that says they will ‘borrow’ $250 million for the capital-incentive program. The reason is that we just don’t need the program. Not in my opinion.

[The lawmakers] ought to talk to the existing companies that used the program in 2006. They have more than enough capital and they haven’t used what they have. Only three of those companies took policies out of Citizens.

[Editor’s note: The Senate requires that the companies using the surplus note program take at least 10 percent of their new policies from Citizens.]

Also, the takeout companies are competing with us and they’re writing policies.

Citizens is going down in [policy] count. We started 2007 with at 1.3 million policies. Now it’s just 1.22 million. That’s a reduction. Everyone was talking about the explosion of Citizens — the Frankenstein. Good Lord.

Q: Is there any hope for a break on insurance costs for homeowners insured by Citizens or any other company?

A: The only long-term solution is mitigation. In your area, many homes are 25 years or older. We seem to be the only [company] that is insuring them. And many of those older, less-expensive homes are owned by people on fixed incomes. We have to have some program that will help put shutters on, tie the roof down and put the garage door on because that is what dramatically eliminates or reduces claims and that is what restricts premiums.

The My Safe Florida Home program is a program that really works. And there are discounts for mitigation.