Political Pressure Mounts for Fla. Citizens Property Insurance to Be ‘Last Resort’ Insurer Again

Oct 18, 2010

The following article was published by BestWeek on October 18, 2010:

The role of Citizens Property Insurance Corp., which has changed from insurer of last resort following its creation in 2002 to competitor in the private market in 2007 thanks to political actions, may change yet again when Florida voters elect a new governor.

Republican gubernatorial candidate Rick Scott has called the state’s property insurance system “broken” and said Citizens “is at the very heart of Florida’s property insurance crisis.” He has pledged to return Citizens to actuarially sound levels and to eliminate Citizens’ reliance on assessments following a major disaster.

The Democrat seeking the governor’s post, Chief Financial Officer Alex Sink, has said Citizens has an obligation to be “accountable and transparent” in its contracting processes. She has called on Citizens to improve its competitive bidding procedures and post all contracts on a searchable website. Citizens is working on revisions to the policy, spokeswoman Candace Bunker said in an e-mail.

Jay Newman, who served as executive director of Citizens and its predecessor, the Florida Residential Property and Casualty Joint Underwriting Association, said he wants Citizens to return to being an insurer of last resort and is hopeful the new legislature will take action to improve competitiveness in the state.

“A positive step to improving the overall market would be to have Citizens’ role revert back to what it was in 2006,” Newman said.

Citizens was formed by the combination of the Florida Residential Property and Casualty Joint Underwriting Association and the Florida Windstorm Underwriting Association. In its early years, it operated as the insurer of last resort.

“Before 2007, Citizens didn’t have much adverse effect in the marketplace,” Newman said. “There were serious efforts to keep its rates moving up and above rates of private companies in the marketplace. That was the intention and it was largely achieved.”

Beginning with a special legislative session in 2007, things began to change. Florida was socked by a total of eight major hurricanes in 2004 and 2005, reinsurance rates soared, and that translated into higher homeowners rates. When insurance rates became a political issue, Newman said the legislature and the governor worked together to roll back and freeze Citizens rates for four years. In addition, Citizens’ mandate changed to that of market competitor. The changes also allowed the Office of Insurance Regulation to set Citizens’ rates and allowed policyholders to remain in the state insurer, even if a private company offered coverage. The state legislature capped premium increases for 

Citizens at 10% annually in 2009.The Florida Insurance Council agrees with Scott that Citizens should be restored to a last-resort insurer and its reliance on assessments on property insurers to handle shortfalls should be minimized and eventually eliminated. In a white paper, the FIC has proposed that the so-called “glide path” for restoring Citizens to actuarially sound levels should be raised to 20% from the current 10%.

“That’s a matter for the legislature,” said Citizens Chief Administration Officer Susanne Murphy. She said each year the insurer, which has 1.2 million policies in force, does an actuarial analysis; when actuarially sound rates will be achieved depends on the line of business.

Newman agrees with the FIC that the 10% cap is too low, saying under the current glide path, it will take years for some rates to return to actuarially sound levels, but didn’t endorse a 20% cap — or any number.

“I don’t know what the right percentage is,” concurred Jeff Grady, president of the Florida Association of Insurance Agents. “Agents would like nothing more than to see Citizens get much, much smaller,” he said. “But where are these people going to go?”

“There needs to be less incentive for policyholders to go into Citizens,” said Florida Deputy Insurance Commissioner Belinda Miller. There needs to be “incentives in law to make people want to be insured by private companies.”

Newman said the Florida homeowners insurance market is “under considerable stress,” and while not all of it is caused by Citizens, the insurer hurts competition in certain parts of the state where its rates are too low. In addition, Citizens’ expenses are much lower than private insurers. Other stresses on the marketplace include sinkholes, aggressive public adjusters, and policyholders who commit fraud or use current regulations to get their insurers to pay for dubious claims, Newman said. Miller concurred that excessive claims are a problem (BestWire, Oct. 11, 2010).

The OIR will host a symposium entitled “Moving the Market Forward” on Oct. 21. Among the items to be discussed are Citizens and the Florida Hurricane Catastrophe Fund.

The top five writers in the Florida homeowners multiperil market in 2009 were State Farm Group, with a 15.09% market share; Citizens, with 13.44%; Universal Insurance Holdings Group, with 8.62%; USAA Group, with 5.9%; and St. Johns Insurance Co. Inc., with 4.59%, according to BestLink, which provides online access to A.M. Best Co.’sGlobal Insurance & Banking Database.

(By Diana Rosenberg, senior associate editor, BestWeek)

Find this article at: http://insurancenewsnet.com/article.aspx?id=230831