New law governing Citizens Property Insurance falls short

May 31, 2013 

As a sharp critic of "the fraud, waste and abuse which has plagued Citizens (Property Insurance Corp.) for too long," Gov. Rick Scott acted quickly in signing reform legislation on Wednesday -- just one day after the bill landed on his desk.

He further stated that the measure's establishment of a new inspector general will not be accountable to Citizens but the Florida Cabinet, ensuring that the state-run company cannot fire the new compliance officer as Citizens did with four corporate investigators last October. That scandal unleashed accusations of retaliation as the investigators uncovered corporate misbehavior, sexual harassment and exorbitant severance packages.

Now Citizens is contending with another outrageous problem -- a $52 million sweetheart deal with a fledgling insurance company based in St. Petersburg. Only open since last August, Heritage Property and Casualty Insurance Co. can cherry-pick 60,000 policies from Citizens in exchange for the money from the state insurer.

The retroactive agreement covers policies from January to June 28, and compels Heritage to cover losses during that time. But since Heritage gets to select the policies, the losses will be minimal if any. So $52 million of Citizens' policyholder money will disappear into private hands.

While the strategy here is to depopulate Citizens of some of its 1.3 million policies and place more into the private market to reduce the state's liability, this is nothing more than corporate welfare -- as critics charge.

Scott is also upset, calling on Citizens to change its policies after the swift approval of the deal with Heritage took state leaders by surprise. Since the company contributed $110,000 to Scott's campaign in March, this looks bad although the governor's office rejects the idea that this was a quid pro quo.

Impact on Manatee

The new law has great implications for coastal counties such as Manatee County. The measure bans Citizens from insuring new waterfront homes.

The proposed Long Bar Pointe development in southwest Bradenton sits along Sarasota Bay parallel to El Conquistador Parkway, and the plan includes single- and multi-family residences and a hotel, marina, commercial space and a conference center.

The Manatee County Planning Commission gave the plan tentative approval last week, even though almost 295 acres of the 463-acre development are within the Coastal High Hazard zone -- prone to flooding during storms.

In his signing statement, the governor noted of Senate Bill 1770: "This common-sense step eliminates public insurance subsidies for new coastal construction with a high risk of storm losses."

Final approval of the Long Bar Pointe plan will require the Manatee County Commission to make text changes in the coastal and conservation management portions of the Comprehensive Plan. That decision could come on June 6.

This old farmland is one of last tracts of undeveloped waterfront in Manatee County, with one of the developers, Carlos Beruff, describing Long Bar Pointe as "transformational for west Bradenton." We don't doubt that. But buyer beware, should this win the commission's blessing.

The new law also reduces Citizens liability by lowering the maximum policy from the current cap of $2 million to $1 million next year and then continuing to fall to $700,000 in 2017.

Property insurance costs will rise as Citizens pushes more and more policies into the private market. Home buyers would be well advised to investigate policy costs before signing a mortgage.

While SB 1770 finally puts Citizens under an independent watchdog for greater accountability, the state still needs to rein in the company from giving away millions in policyholder money to upstart private insurers with no track record.

Especially with companies such as Heritage, where the leadership has a record of insurance rules violations, thousands of dollars in fines and a failure to pay claims in a timely way. There must be accountability there, too.

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