EDITORIAL: Let Citizens keep money; keep premiums frozen

Mar 31, 2008

If the Legislature doesn’t let Citizens Property Insurance Corp. raise rates, the Legislature shouldn’t take money from Citizens.

Palm Beach Post-
-Mar. 31, 2008

With property insurance still contributing to Florida’s affordability problem, one big issue this year is what to do with the state-run insurer of last resort. To the annoyance of private insurers, the Legislature gave Citizens policyholders a rate freeze this year and last year. Now, Sen. Jeff Atwater, R-North Palm Beach, wants to extend the freeze through 2009 and cap any increases between 2010 and 2012 at 10 percent. A Senate committee approved that proposal last week.

Sen. Atwater almost certainly will become Senate president if he is reelected in November. He’s an ally of current Senate President Ken Pruitt, R-Port St. Lucie. House Speaker Marco Rubio, R-West Miami, said he would support a rate freeze. So did Gov. Crist. It’s an election year, and many of Citizens’ roughly 450,000 high-risk customers live in vote-rich South Florida.

But critics contend that Citizens doesn’t have enough money to pay claims in a bad year. The strongest critics come from the private insurance industry, which believes that the rate freeze amounts to a competitor’s subsidy. If that’s the argument, though, why would the state take money from Citizens?

House Bill 5057 – whose cosponsor is an insurance agent, Rep. Ron Reagan, R-Sarasota – would divert $100 million from Citizens’ surplus that is projected to be $4.1 billion at the end of this year. The money would go to small private companies, which supposedly would use it as an incentive to take policies out of Citizens. There is no Senate legislation, but the session still has five weeks left.

Even those who would extend the Citizens rate freeze acknowledge that it’s a gamble. The trade-off is that the high-risk policies are in areas that pay a disproportionately high share of the state’s taxes, amounting to a subsidy for poorer, rural areas. Pushing insurance rates even higher could deepen the economic problems. Of course, there also could be a bad storm.

Christine Turner, communications director for Citizens, said the company’s rate analysis concluded that an increase for high-risk policies could be as low as 18.6 percent or as high as 56.5 percent. The figure would be higher if Citizens decided to buy lots of state-subsidized reinsurance, and lower if the Citizens board relied more on statewide assessments to pay excess claims. “The answer,” Ms. Turner said, “is probably a combination, somewhere in the middle.”

Given the real-estate slump, extending the rate freeze makes sense. It also seems likely to happen. If it does, though, Citizens will need every $100 million it can get.