Florida Okays Rate Hikes for State-Run Insurer

Published October 30, 2012

Florida’s Office of Insurance Regulation has granted the state-run Citizens Insurance Property Corp. a 10.8 percent statewide average rate increase, slightly lower than what Citizens had initially requested. The increase includes the full 10 percent statutory cap on rate increases, plus a little more for other costs.

Coverage for sinkhole losses posted the largest rate increases granted by the OIR. Counties such as Pasco and Hillsborough in west-central Florida will experience the highest increases at roughly 25 percent and 50 percent, respectively. These increases will cost residents an average of about $130 to $375 more per year.

S.B. 408, passed during the 2011 legislative session, allows Citizens to increase sinkhole premiums beyond the 10 percent cap and includes several other provisions aimed at curtailing fraudulent sinkhole claims, which were exponentially increasing costs every year. The OIR says it is still too soon to quantify cost savings from the reforms.

Needless to say, the rate increases were not welcomed by many Floridians, and they are just one more in a list of recent controversial actions by Citizens. For months, residents and consumer advocates have decried Citizens’ re-inspection program, which has caused many policyholders to lose their homeowners’ mitigation discounts.

Striving for Private Insurers

In October key legislators and pro-business groups endorsed a controversial plan to divert $350 million of Citizens’ roughly $6.2 billion surplus to a loan program intended to incentivize private carriers to assume hundreds of thousands of Citizens policies for at least 10 years. This would effectively transfer the risk of those policies away from taxpayers and onto those private companies, which is good, but lawmakers such as state Sen. Mike Fasano (R-New Port Richey) and state Rep. Frank Artiles (R-Miami) have expressed concerns about tapping into Citizens’ surplus.

In an October 5 letter to Artiles, Citizens CEO Barry Gilway noted the program would:

  • Dramatically reduce Citizens’ risk pool, reducing the Emergency Assessment potential for all Florida policyholders from $3.06 billion to $1.89 billion—which otherwise could cost Citizens $2.4 billion in reinsurance over the next 10 years.
  • Free up to 300,000 Citizens policyholders from the potential for assessments totaling 45 percent of their premiums by providing them with the opportunity to secure preferred coverage from reputable, private-market Florida insurance companies.

“We agree that companies that receive loan incentives through the Surplus Notes Program should not remove a policy that another company is willing to take without loan incentives,” Gilway wrote. “To avoid this, we have deferred the start of the Surplus Notes Program from November to December to allow the companies participating in the traditional depopulation program to remove policies in advance of the launch of the new program.”

Good First Step

The plan is a good first step in starting to shrink the size of Citizens, but more would have to be done to ensure the state-run insurer does not continue adding new policies once the $350 million threshold is met. In short, the proposal opens the back door for a time, allowing policies to exit Citizens but without making it more difficult for new policies to get in the front door.

The takeout proposal has yet to be approved by the Citizens governing board, but the OIR recently approved an unrelated takeout arrangement between Citizens and four Florida domestic companies beginning in November. This agreement will take roughly 60,000 policies out of Citizens and transfer them to private companies. Citizens’ policyholders will be notified and given 30 days to opt out of the takeout; otherwise their policies will be automatically assumed by one of the private carriers.

Each policy taken out of Citizens decreases the likelihood or severity of a taxpayer bailout of the state-run company after a bad hurricane season, so these are all positive steps. However, to truly address Citizens’ overpopulation and the perpetual entry of new policies, the Legislature must revisit eligibility requirements and rates to eliminate Citizens’ unfair market advantage, which is what continues to drive policies in their direction.

Christian Camara ([email protected]) is Florida director of the R Street Institute, where an earlier version of this article appeared. Used with permission.