Find reasonable solution to Citizens Insurance dilemma, don't punish policyholders

October 7, 2012 

There are no easy solutions to the mess wrought by Citizens Property Insurance Inc. For years now, the state-run insurer has been more a political tool than a sound business. The latest developments ensure an even more heated debate over the company's direction.

Under Gov. Rick Scott's orders to shed policies, the Citizens board has been pursuing draconian measures that will force homeowners to pay far higher prices for insurance.

Last week, that campaign gained strength after state insurance regulators approved an average 10.8 percent rate increase statewide. In Manatee County, some properties will be hammered with up to a 22 percent surge.

At the same time, five private insurance companies started mailing so-called "takeout" proposals to 210,000 Citizens policyholders, offering an alternative to the state insurer that gives homeowners 30 days to opt out before they are forced into one of the private insurers. This puts the onus on property owners, a patently unfair process.

This follows Citizens' overhaul of its sharply criticized reinspection program of homes with hurricane-resistant features. More than 190,000 properties owners lost their "wind-mitigation discounts" with some paying thousands more in premiums. The average premium increase for homeowners who lost the discount is $800. Citizens has already boosted revenue by more than $130 million.

But under intense pressure, Citizens is revamping its stringent reinspection policy.

Over the past year, the not-for-profit company has also boosted post-storm deductibles and dropped coverage of awnings, gazebos and most carports and pool cages. This raises the stakes for homeowners.

This aggressive campaign to downsize Citizens comes out of fears that the company is carrying too much risk with about 1.4 million policyholders and too little capitalization -- even though the company has built up a record $6.2 billion in reserves after seven years without a hurricane.

Should a hurricane strike a wide swath of the state, wreak billions of dollars in damage and Citizens coffers run dry, hurricane taxes could be imposed to bail out the company. But experts assert only a hurricane season more catastrophic than Florida has witnessed in a century would trigger that tax.

Still, Citizens is operating on artificially low rates that are actuarialy unsound. Politicians only have themselves to blame for that quandary.

Created a decade ago by the Legislature to serve homeowners in high-risk areas and others who could not get coverage in the open market, the state insurer initially charged rates comparable to private companies. Insurance agents were banned from writing Citizens policies if a private insurer would carry the risk.

Then politics intruded as property insurance became a pocketbook issue in the 2006 election after rates skyrocketed in the wake of 2005's horrific hurricane season. Under Gov. Charlie Crist, wind-mitigation discounts doubled in 2007. Two years later, the Legislature passed a law limiting Citizens' annual rate increases to 10 percent. Private insurers, not limited to rate restrictions, kept increasing premiums and canceled policies in high-risk areas, and some fled the state entirely. Abandoned homeowners joined Citizens. The company drifted away from its mission as the insurer of last resort.

Today, the Citizens board of eight unelected governors is aggressively pursuing Scott's directive to depopulate the company -- effectively putting the property insurance market back into the hands of private companies. The reasoning is rates will eventually drop under the weight of free-market competition, a gamble that puts consumers at risk.

While that's understandable by free market standards, as a practical matter this seismic policy shift could reverberate through the economy with political implications to follow. Most homeowners can ill afford hundreds or thousands of dollars more in annual premiums, with that money diverted from other areas of the economy.

Home sales are expected to drop. Out-of-state business recruitment would be more challenging as companies calculate the costs of doing business in Florida. Voters could express their outrage at the ballot box, jeopardizing Scott's re-election chances. Politicians should be held accountable.

The governor should reverse course on Citizens and convene a gathering of stakeholders to find a reasonable solution to this dilemma. Making consumers pay the price for this political folly is simply wrong.

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