Lawmakers aim to reduce Citizens, the state insurer of last resort

04/25/11 Kate Bradshaw
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If you own a home near the Florida coast, pretty much your only option is Citizens’ Property Insurance, which was intended to be the insurer of last resort. The governor and state legislature are hoping to shrink Citizens, if not do away with it all together.

Citizens’ covers some 1.3 million homeowners. The Sarasota Herald-Tribune reported Saturday that Governor Rick Scott wants to do away with Citizens by the end of his term. Tampa lawyer Sean Shaw, who served as the Insurance Consumer Advocate under former CFO Alex Sink, said the move is highly anti-consumer.

"So, the Governor has a meeting in the mansion with a whole bunch of insurance lobbyists and this is what happens. Do you think any consumer representatives were in that meeting? Do you think that Insurance Consumer Advocate of Florida, which I used to be, but do you think that person was in the meeting? Do you think anyone representing the interests of consumers was in that meeting? I doubt it."

In February, Governor Scott reportedly met with industry lobbyists to help draft legislation relating to insurance. Shaw said the governor is wrong if he thinks Citizens is just another way to leave taxpayers on the hook for other people’s expenses.

"We do not want that. No one wants that. I'd love a State Farm, an AllState, Farmers, and all these insurance companies covering everyone in the state of Florida. That's what you want but it simply does not exist."

According to the Herald-Tribune, the governor appears to want to phase out the program. Starting next year, coverage would no longer be offered to properties exceeding $1 million in value. That number would shrink over several years before it was zeroed out. Terry Butler currently serves as Florida’s Insurance Consumer Advocate. He said phasing out Citizens wouldn’t get to the heart of Florida’s insurance problem.

"It was limited to $2 million a couple of years ago and now they want to limit it to homes that ... have a replacement cost of less than $1 million. And then 2 years from now they want to lower it to $750,000 and then $500,000. That really ignores the problem which is that insurance companies are not writing homeowners insurance policies on the coast of Florida."

Those who would lose their coverage may be wondering what their future options would be. Most likely, their only option would be to buy what’s called a surplus line from an outside insurer. These are not regulated by the state, since they’re companies that operate outside of Florida, and often outside the US. Shaw said such policies really aren’t appropriate for homeowners.

"Essentially what surplus lines is for is if you were going to try to insure the arm of the number one NFL draft pick. Or if you wanted to insure, like, Greta Garbo's legs, I mean it's for really specific things. Lloyd's of London type things."

The state legislature is taking up several bills dealing with the insurance industry. One would require Citizens to cover sinkhole damage, while not mandating private insurers to do the same. Another would allow the company to raise its rate by 25 percent each year. Butler said that could be detrimental to consumers.

"There are people in Citizens now who pay thousands and thousands of dollars on their premiums. People in coastal properties like Miami-Dade and Broward they can pay 7,8, 10 thousand dollars and a 25 percent rate increase is extremely high and difficult for people to afford."

He added that the state approved a ten percent increase in recent years, and said a more gradual rate hike would soften the blow to policyholders.

"So, increase premiums and rates gradually over time to get up to a level that is actuarially sound without increasing the rates so fast that you place a great burden on policy holders in Citizens. I think they should just stick to that. Last year Citizens made a profit of $800 million and they increased their surplus by $1 billion so it's not like they are really hurting for extra money at this point."

Citizens is funded mostly through assessments on private insurance policies. As part of a larger bill, state senator JD Alexander, a Republican from Lake Wales, wants to change the insurance carrier’s name to “Taxpayer Funded Property Insurance Corporation.” Tampa Consumer Advocate Sean Shaw said he does agree that Citizens needs to shrink, but he doesn’t see the logic in the way the governor and legislature are poised to go about it.

"I think we all would like to shrink Citizens because if you shrink Citizens that means people are getting insurance elsewhere. And that means people are able to go to a company and get it. I think we all want Citizens to get smaller. I think we just disagree on how to get there."

Shaw said when you look at all of the bills dealing with property insurance currently before the state legislature, a pattern quickly emerges.

"There is a bill to deregulate the private market. There's a bill to raise Citizens rates by 20 percent a year. There's a bill to diminish the power of the Insurance Consumer Advocate's office. There's a bill to eliminate the requirement that private companies offer sinkhole coverage, mandate Citizens to provide sinkhole coverage and make it harder for you to file a claim and get paid. These are, all of those bills taken together ought to tell you what the Legislature is about."

The legislature is taking up these bills throughout the next two weeks as part of its attempt to pass a state budget.

Previous WMNF news coverage of the 2011 Legislative session

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