Walter Dartland: Program can ease the load on Citizens Property Insurance

Nov 6, 2012

The following article was published in the Tallahassee Democrat on November 6, 2012:

Walter Dartland:  Program can ease the load on Citizens


By Walter Dartland

There has been a very lively debate surrounding a proposed program from the state-run Citizens Property Insurance Corp.

The program is called the Surplus Note Depopulation which, if you strip away the very bureaucratic sounding title, simply is an attempt to remove some of the 1.5 million policies with which Citizens is bursting at the seams. The largest five homeowners insurance companies in Florida combined do not have that many policies!

State leaders have taken a hard look at the program and asked tough questions. Citizens responded appropriately by ordering an immediate outside review by an international financial firm to ensure that the program’s financial calculations are sound, and that it could be available before the end of this hurricane season.

A large storm or series of storms could trigger hurricane taxes that could put recession-weary Floridians over the edge. Nine in 10 Floridians do not even realize they can be taxed when Citizens can’t pay its claims.

Florida law says Citizens policyholders have to pay first when Citizens runs out of money — potentially 45 percent of their premiums.

If those taxes are not enough to refill Citizens’ depleted coffers then all Floridians who aren’t in Citizens get taxed. It is estimated that a major storm or a serious of smaller storms hitting a large Florida population center would require hurricane taxes to be applied to home, auto and other insurance policies that could put the average Floridian at risk for $1,500 in the first year alone. And additional hurricane taxes would have to be charged for many years after that. Note that a small-business owner could be hit with additional taxes on business property and vehicles.

Not only are Citizens policyholders going to be the first to be taxed if they have not taken advantage of the new program, but they also have less coverage. For example, Citizens has reduced its liability coverage for policyholders to $100,000 from the more common $300.000 limit, and separate structures such as sheds, fences and pool screening are no longer covered.

I would bet that Citizens will continue to try to reduce its risks.

Customers who avail themselves of the new program are given the same rates they had with Citizens, and those policies must mirror the limits on Citizens rate changes for three years and after that period must have rates approved by the insurance commissioner. These are solid consumer protections.

Companies taking part have to meet heightened financial requirements, and, in the rare instance a company runs into trouble, there is a state-run guarantee fund that seamlessly picks up claims. Policyholders will have the right to opt out of Citizens and may opt back into Citizens at their request or obtain a policy with another private insurer.

While virtually everyone agrees that Citizens is too large, there has been less agreement on how to shrink it. The Surplus Note Depopulation Program shows great promise and needs to be vetted with all due haste. Next year’s hurricane season will be here before we know it.

Walter Dartland is executive director of the Consumer Federation of the Southeast.

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