State-backed Citizens should be privatized

Jul 14, 2011

The following article was published in the Florida Current on July 14, 2011:

State-backed Citizens should be privatized

By Gary Fineout

Frustrated by the inability to win changes from state lawmakers, the chairman of the state-created Citizens Property Insurance Corp. said on Wednesday that legislators should privatize part of the company.

The idea quickly gained support from Gov. Rick Scott and Sen. Garrett Richter, the chairman of the Senate panel that oversees insurance. It was also criticized by Sen. Mike Fasano, who said homeowners are only in Citizens because they can’t get coverage elsewhere.

The move would place tens of thousands of policyholders into a new company that could more easily raise its rates than Citizens. Citizens, which was created nearly a decade ago, can only raise its rates 10 percent a year. It is the state’s largest insurer with nearly 1.4 million policyholders.

Malone defended the idea, saying that the state has a “train wreck coming at us” because Citizens has billions in exposure because the insurer covers many of the homes and apartment buildings and condominiums along the state’s coastline. Citizens also continues to grow by an average of 4,200 policies a week.

“It’s not a question of whether we are going to have a hurricane … it’s a question of when, where and how bad,” Malone said during a meeting of the Citizens Board of Governors.

Scott and others backed a bill this past session that would have allowed Citizens to annually raise its rates as high as 25 percent. But the proposed legislation also would have made it harder for Floridians to obtain coverage through Citizens. The measure barely made it through one committee.

Malone said that if lawmakers didn’t have the political will to pass the measure this year then it would be impossible to pass during next year with an election looming. He said he didn’t understand why legislators were willing to make it easier for private companies to raise rates by passing SB 408 but didn’t do the same with Citizens.

That’s why it may be better to just take as many as 800,000 policies and place them in a new private company, he added. That company could charge higher rates — and just as importantly — the privatization would lower the amount of risk for those policies left behind in Citizens. Currently Citizens can place an assessment on nearly every insurance bill — including auto insurance — if it does not have enough money to cover losses from a major hurricane.

Richter, who supported the Citizens proposal, said that he would “absolutely approach that discussion with an open mind.” Privatization of Citizens would require legislative approval.

Scott, who has said he would like to eventually eliminate the ability of Citizens to charge assessments, said he would look at a privatization proposal “closely” if it would help eventually bring down the cost of insurance in the state.

Fasano, however, questioned the idea of privatization. He said people he represents only turned to Citizens after they were dropped by private companies and were unable to get affordable coverage elsewhere. Fasano added that Citizens may only grow larger because state legislators made it easier this year for private carriers to raise rates.

The New Port Richey Republican pushed back at Malone’s suggestion that lawmakers lacked the political will to deal with Citizens.

“The political will that is needed in Tallahassee is to say no to the private insurance companies,” Fasano said.

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