Citizens Property Insurance in more flux than ever

Nov 19, 2011

The following article was posted to the website on November 19, 2011:

Citizens Property Insurancein more flux than ever

By KeysNet staff

Citizens Property Insurance Corp. is confronting a growing dilemma — it has too many customers. Already the largest property windstorm carrier in Florida, the quasi-public agency finds itself caught between two hard places in Tallahassee.

And depending on how the push-and-pull plays out in the Legislature, Keys property owners could find themselves paying a lot more for windstorm insurance — if they can even get it down the road.

Citizens’ board of governors met in Orlando on Monday and decided to formally embrace a package of rule changes that would mean rate hikes of 20 percent a year and a possible cap on maximum coverage.

Both steps could eventually reduce the number of policies in force, which is high on Gov. Rick Scott’s agenda for reducing the state’s exposure in the event of a catastrophic hurricane. He’s even talked about moving Citizens from government to the private sector.

But Scott and the Cabinet met Tuesday and heard a report from the Florida Hurricane Catastrophe Fund, which reported a $3.2 billion shortfall in meeting the goal of a $17 billion backup fund for claims in the event of a hurricane.

Jack Nicholson, director of the fund, said uncertainty in the global investment market makes it difficult for the state to sell bonds that would close the gap.

The Catastrophe Fund would be tapped to pay off hurricane damage claims that overwhelm reserves held by Citizens Property Insurance and other carriers.

Nicholson recommended the state continue to levy a 5 percent cash buildup provision until 2018. “We’re dealing with a house of cards based on the global market,” Florida Attorney General Pam Bondi warned at Tuesday’s Cabinet meeting.

Michael Peltier, covering that meeting for the News Service of Florida, reports that “one offshoot of the CAT fund’s precarious status is to push more policyholders toward the state-backed Citizens Property Insurance Corp., which now has nearly 1.5 million policies.”

That runs counter to the message the Citizens governing board heard on Monday and counter to the direction that Scott has been pushing the past year.

“This concept of wanting to sell [off] Citizens, I just don’t get it,” said Annalise Mannix, executive director of Fair Insurance Rates in Monroe. “His idea of giving it back to the private insurance market — those are the same people who didn’t want it in the first place.”

She notes that as private, for-profit insurance companies pare back their policies in Florida, Citizens has found itself the insurer of last resort. And the load is getting bigger, not smaller, she said.

“Citizens is now getting upwards of 9,000 new customers per month,” Mannix said. “And these are not people living on the coast. These are people inland where insurance companies are just walking away from them.”

The debate about how big Citizens is now and how much that exposes taxpayers has been heating up this past year.

Mannix said the mandate for Citizens is pretty clear: “Citizens has been told it needs to depopulate; the more policies they have, the higher the risk. Now the question is how to ditch a bunch of policies.”

Sen. Alan Hays (R-Umatilla) helped author an insurance bill package that failed to make it out of committee early this year. Included in his proposals, which the Citizens board embraced Monday, is a recommendation to ban commercial properties from Citizens windstorm coverage.

That would reduce the number of policies pretty quickly, Mannix said, but it would have an adverse impact in areas like the Keys, where there is virtually no alternative windstorm insurer.

Mannix said lawmakers looking at Citizens’ risk projections should be challenging the risk models being used, noting that the Florida Commission on Hurricane Model Methodology has conceded current models “are not accurate.”

She said the models assume greater damage from windstorm than flooding, which has not been the case in the Keys, where most of the damage from hurricanes comes from flooding.

And flood insurance, she notes, is covered under a federal program that has no bearing on what Citizens faces in future claims. “None of the models deal with this issue of wind vs. flood in a real way,” Mannix said.

Last year, Citizens filed a rate increase that would have triggered hikes of as much as 235 percent for commercial coverage, according to FIRM’s website. Those rates are based on faulty assumptions about future losses, she said, adding the Legislature’s primary duty this upcoming session should be “fix the models; it’s not hard, although it will take two years.”

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