New Citizens Property Insurance chief wants better public outreach

Jul 11, 2012

The following article was published in The Florida Current on July 11, 2012:

New Citizens Chief wants better public outreach

By Gray Rohrer

The new head of Citizens Property Insurance Corp. said Wednesday the company must do a better job telling its customers about the nature of its policies, especially the possibility of assessments if a large storm hits the state.

Barry Gilway, appointed president and CEO of the state-run insurer by its board nearly a month ago, wants greater awareness both by Citizens customers and homeowners at large, because property owners with private market coverage also face assessments after a large hurricane.

“There is an assessment associated with a Citizens policy that is not associated with other alternatives,” Gilway said. “While I don’t want to blow that out of proportion, the reality is it exists, it’s there. There’s financial risk associated with taking a Citizens policy compared with a policy that you may be able to be placed with from a competitor.”

Citizens is awaiting results from customer surveys it sent two weeks ago asking homeowners which policy areas they want to be better informed about. Gilway said he also wants to stress to independent agents the importance of moving more policies out of Citizens and into the private market.

But those improved communications could be difficult. Florida has not had a major hurricane in more than six years, but premiums in the private market have risen at a higher rate than Citizens’. After legislators froze Citizens’ rates in 2007 after two fierce storm seasons and turbulence in the insurance market, they placed a 10 percent cap on annual rate increases for Citizens in 2009. Citizens board members say that lag has prevented them from charging rates that are “actuarially sound” — rates high enough to cover maximum expected losses in a given year without assessments.

The need for higher rates will be a hard sell in Florida, especially in areas where Citizens says it is needed the most. In much of the state Citizens’ rates are adequate or nearly adequate. However, in regions such as the Tampa Bay area, where several locales generate rampant sinkhole claims, and Miami, where private insurers have been reticent about issuing new policies, rates need to rise significantly to reach an “actuarially sound” level.

The push for higher rates also comes at a time when Citizens is as financially sound as it has been in recent years. It has a $6 billion surplus, $6.9 billion in reinsurance coverage from the state Cat Fund, and $1.5 billion in private reinsurance, enabling it to cover most storms and pay $14.4 billion in claims without assessments. Citizens also has $5.1 billion in pre-event bonds that would generate assessments if tapped after a catastrophic hurricane, allowing it to pay up to $19.5 billion in claims. That’s almost enough to cover the $21.57 billion probable maximum loss Citizens faces this year if a one-in-100-year storm strikes Florida. The difference would be made up in additional assessments to premiums.

Proposals to increase the cap on Citizens rate increases from 10 percent to 20 percent or more have not gotten much traction in the Legislature in the past two years, despite a Republican stranglehold on power. Gilway said any such effort to increase the cap must come as part of a comprehensive reform package in order to win over lawmakers.

“That’s the $64,000 question. We really have to work very, very closely on coming up with a reasonable legislative package, working with the members of the Cabinet and working with our board and recommending to our board a set of legislative actions that will both reduce the overall loss potential on our book of business and also at the same time improve the overall rate picture in some key counties,” Gilway said.

Whether such a package can be achieved remains to be seen. Lawmakers have waged fierce battles over insurance legislation the past two years and the issue is already cropping up in mailers and attack ads in legislative campaigns.

Citizens will conduct a workshop Monday to develop rate proposals for next year. One plan floated by the board to seek a rate over the 10 percent cap for new policies has hit resistance from several lawmakers, including Chief Financial Officer Jeff Atwater, Senate President in 2009 when the cap was put in place. A letter from 25 Republican lawmakers, however, expressed support for raising the cap.

The Citizens board will vote on a rate proposal during its July 27 meeting, which then must be approved by the Office of Insurance Regulation.

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