The Office of Insurance Regulation has issued an order thatrequires Citizens Property Insurance Corporation to offer coverageto homeowners whose policies had been removed by private insurerscharging unapproved rates. The order centers on two take-outcompanies that have removed thousands of polices from Citizens.Florida Peninsula Ins. Co. has taken out more than 85,000 policiesand Homewise Ins. Co. has taken out 31,000 policies. Most of thepolicies are located in South Florida.

By law, Citizens is required to charge rates that are higherthan rates charged by private insurers so that the in-surer is notcompetitive with the private market. Specifically, the residualmarket must examine the rates charged by the 20 largest carriersoffering homeowners' insurance in the state and set its rates abovethe average rates charged by those top 20 carriers in any giventerritory. Under Citizens' take-out plan, policyholders that areoffered coverage by a private insurer are automatically declaredineligible for Citizens' coverage.

Insurance Commissioner Kevin McCarty noted that just because aprivate insurer charges a higher rate than Citizens, policyholdersdon't remain eligible for Citizens' coverage. But in this case,McCarty was addressing a loophole in the law that allowed the twotake-out companies to charge higher rates.

Specifically, since the two companies are nowhere near the top20 carriers, they took the position that they could charge evenhigher rates than otherwise allowed by law. They also decided toimplement their rate filing on a use-and-file basis, in which theycharged policyholders rates before they were examined byregulators. As a result, many policyholders were facing premiumincreases of 100 to 200 percent and had little choice but to paythe premiums since they were ineligible for Citizens' coverage andthey couldn't find an alternative choice in the voluntarymarket.

Regulators rejected the rates utilized by Florida Peninsula andHomewise based on the fact that the rates were partially based onrates proposed by Citizens for Monroe County. Citizens hadrequested that in Monroe County, homeowners' rates increased by anaverage 25.9 percent and manufactured housing 15.2 percent. McCartyrejected the premium changes in favor of a 35 percent decrease inhomeowners' rates and 15.2 percent rate cut for manufacturedhousing. Since the Monroe County rates had been denied, McCartydeclared that the rates charged by Florida Peninsula and Homewisewere likewise void.

“The Citizens take-out provisions which the affectedpolicyholders fall under were written to achieve a good end.However, because of unintended consequences, these people arefacing a financial nightmare,” McCarty said. “They were alreadybeing charged the highest insurance rates where they live only tosee their premiums sky-rocket even higher. Clearly this is not whatthe law intended, but fortunately the law does allow the relief Iam ordering.”