Citizens Property Insurance considering rate hike on new policies, but director voted for cap

May 24, 2012

The following article was published in The Florida Current on May 24, 2012:

Citizens Considering Rate Hike on New Policies but Director Voted for Cap

By Gray Rohrer

Tom Grady, interim director of Citizens Property Insurance Corp., has said he thinks the state-owned company’s plan to raise rates for new policies above the 10 percent cap put in place by lawmakers in 2009 is legal. However, when he was in the House he voted in favor of the legislation that implemented the cap.

“Can we decouple? Legally we think we can,” Grady said last week during a meeting to discuss the proposal.

It is unclear what Grady thought in 2009 when he voted for HB 1495, which put the cap in place beginning Jan. 1, 2010. He did not vote when the original roll call was taken, but later cast a yes vote. He did not return calls for comment Thursday.

Citizens was designed to be a backstop for homeowners who couldn’t afford insurance from the private market. Some lawmakers, though, have become concerned that it has grown too large and taken on too much risk, with 1.45 million policies — by far the most in the state. If a major hurricane strikes, even homeowners without Citizens coverage will see assessments added to their bills to help pay claims.

Board members for Citizens, prodded by Gov. Rick Scott to use nonlegislative means to “depopulate” and make the state-run insurer less attractive, have been reducing or eliminating coverage on certain lines. Now they have developed a plan to increase rates above the 10 percent cap for new policies.

The reasoning is that the cap only applies to rate increases, and the higher rates on policies written for new customers would not constitute an increase since they would be an original rate.

But lawmakers opposed to the rate increases have cried foul, saying the cap applies to all policies, not just existing policies. Sen. Mike Fasano, R-New Port Richey, has spoken publicly against the plan, and Sen. Anitere Flores and Rep. Carlos Lopez-Cantera, both Miami Republicans, have written strongly worded letters criticizing the proposal to break the cap for new business. Chief Financial Officer Jeff Atwater, who was Senate President in 2009, has sent a letter to Citizens board members telling them any rate increase for new policies above the cap would not be in keeping with the law. All four voted for  the 10 percent cap on rate increases in 2009.

Fasano doesn’t think there was any ambiguity among lawmakers voting at the time about whether the cap applied to all policies or just existing policies.

“I believe everyone in the House knew that and everyone in the Senate knew what they were voting for,” Fasano said.

Flores, who has stated she will file legislation next year to make it clear the cap applies to all policies, said the bill would not have passed had there been a loophole in the rate hike cap.

“I don’t think the Legislature would have voted for the cap had it only covered existing policies. As far as I recall it was never discussed if it did not apply to new business,” Flores wrote in an email. She was a member of the House in 2009.

Meanwhile, Scott, who was a neighbor of Grady’s in Naples and appointed him to be interim director, has been noncommittal about whether the Citizens plan is legal. Although Scott has asserted the constitutionality of drug-testing state workers, prison privatization and employee pension contributions, he has not taken a position about whether a rate increase for new policies above the cap would contradict state law.

When asked last month what his position was, his office sent this response:

“Gov. Scott is not in a position to give a legal opinion on this. His goal is to keep the cost of living as low as possible for all Floridians but he also believes we have to find a way to fix Citizens and return it to insurer of last resort. This isn’t an easy issue to solve, but he’s working hard to find solutions that will allow that to happen.”

When asked this week, his office replied, “Governor Scott’s goal is to keep the cost of living down and find a way to fix Citizens and return it to insurer of last resort.”

Equally unclear is Lt. Gov. Jennifer Carroll’s position. She also voted for the rate hike cap as a House member in 2009. When asked Thursday whether Carroll thinks the cap applied to all policies or just existing policies, Scott’s office sent this response from Carroll:

“At the time, the Legislature was trying to stop the bleeding and see how we could control the increase risk of Citizens to the state.  It was our belief that the cap would control the cost of Citizens while the state figured out how to get out of the insurance business.”

Citizens board members will decide in the next two months whether or not to file a rate request for new business above the 10 percent cap on rate increases. The rate request is subject to the approval of the Office of Insurance Regulation.

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