Walter Dartland and Brad Ashwell: Keep killing the Citizens Insurance fund transfer

Jun 5, 2008

Tallahassee Democrat–June 5, 2008

Walter Dartland and Brad Ashwell
My View

On May 28, Gov. Charlie Crist vetoed a provision quietly slipped into the Homeowners Bill of Rights Act (CS/CS/SB 2860 and 1196) that could have left Floridians on the hook for an additional $250 million in insurance losses.

This new potential liability would have been added to the millions of dollars in deficits incurred by Citizens Property Insurance Corp. as a result of the 2004 and 2005 hurricane seasons.

Floridians already are paying a 2-percent surcharge on their homeowner’s insurance premiums and a 1-percent surcharge on their auto insurance premiums. These assessments could continue for as many as 10 years. Why, then, would anyone think it a good idea to raid the surplus in two of Citizens’ three accounts when the threat of catastrophic losses looms large?

The $250 million would have extended the life of a low-interest loan program for insurance companies enacted by the 2006 Legislature. The Insurance Capital Build-Up Incentive Program originally was funded that year with surplus tax revenues generated from hurricane repairs to homes and businesses. This go-round, however, the Legislature raided Citizens, taking money from funds that would have been used to pay claims in future hurricanes.

The intent of the Legislature was to lower Citizens’ risk exposure by shifting the potential liability to the private marketplace, an admirable goal. The program provided capital in the form of surplus notes to upstart companies to help them meet minimum surplus requirements. Thirteen companies shared the pot, with some receiving as much as $25 million in exchange for a promise to write an agreed-upon ratio of premiums to surplus.

Here’s the rub. Only two of the 13 companies had written the premium volume they pledged to write, State Board of Administration data show. And because companies carefully choose the policies they are willing to take out of Citizens to minimize their potential losses, Citizens’ risk exposure has not been materially reduced. One of the only tangible results to come out of the program is that 11 insurance companies now are sitting on millions of taxpayer dollars — and consumers’ risk of assessment remains virtually unchanged.

Today, Citizens has more than 1.2 million policies in force, giving it the largest market share of any company writing residential property insurance in Florida. The Legislature itself acknowledges that Citizens faces the threat of catastrophic loss in the event of a hurricane. These losses will be covered by assessments against insurance companies that ultimately are passed along to policyholders.

Gov. Crist’s line item veto of the fund transfer from the Bill of Rights legislation struck a blow for consumers. But the fight isn’t over. Similar language appears in three additional bills yet to come before the governor. The Consumer Federation of the Southeast, the Florida Consumer Action Network and Florida PIRG applaud the governor for his actions and urge him to keep his veto pen in hand.

This transfer of funds, which amounts to 8 percent of Citizens’ surplus, is a slap in the face of hardworking Floridians who are struggling to pay their premiums, which soared after the 2004 and 2005 hurricane seasons. The legislative intent to increase competition is laudable. But taking money from Citizens to fund start-up companies just doesn’t make sense.

As a well-known former legislator used to say, let’s kill this provision “Black Flag dead” everywhere it appears. Gov. Crist, we trust your keen eye and good instincts when it comes to legislation that would hurt Florida consumers.