NU Online News Service, July 17, 3:32 p.m.EDT

Florida's last-resort insurer unveiled a plan to raisehomeowners' insurance rates by an average of 7.5 percent—far belowactuarially sound rates in many territories.

The board of Citizens Property Insurance Corp. during a workshopin Miami on July 16 revealed its plan to lawmakers, who gave mixedreactions.

"I don't think it was by any means the tongue-lashing that hasbeen reported," says Barry Gilway, newly-appointed CEO of Citizens,to PC360.

"The bottom line is we are required by statute to fileactuarially sound rates and if we were to do that we'd be seekingan average increase of 34.2 percent statewide," Gilway says.

Some areas, especially on the coast, require a much largerincrease to be actuarially sound, Gilway says. For instance, MonroeCounty needs an increase of 166 percent. Dade County could use a 72percent hike.

However, state law only allows Citizens to increase rates nomore than 10 percent on any one policy. After applying this cap,Citizens arrived at the average 7.5 percent increase.

"It is important to note that rate increases vary dramaticallythroughout the state," says Gilway, who remained in Miami on July17 to continue talks with legislators.  "In fact, close to40 percent of territories don't require an increase."

Gilway says no one would ever recommend the kind of rateincreases needed to immediately bring Citizens to a state ofactuarially soundness—though it would most surely restore Citizensas the true last-resort insurer, and not the largest writer ofproperty insurance in the Sunshine State.

But there is a balancing act that needs immediate attention.Gilway explains: "Insurers of about 76 percent of the marketCitizens does not have are getting rate increases in excess of whatwe have proposed."

This means the gap between the rates a homeowner can get on theprivate market and the rate the same homeowner can get fromCitizens is widening.

"That is dangerous," Gilway says, because a homeowner can turnto Citizens if the rate on the private market for the same propertyis 15 percent higher than Citizens' rate.

Therefore, Citizens continues to remain the cheaper option formany homeowners.

Citizens and lawmakers are also mulling whether the 10 percentcap applies to only renewal business. Gilway says a legal analysisof the law concludes Citizens could increase rates higher for newbusiness.

"There is not a clear consensus about this and many moreconversations need to take place about it," Gilway says. "There isa lot of legislative resistance."

Citizens will now focus on other exposure-reducing tactics bymaking changes to its policies to make it a less attractive optionfor homeowners.

Gilway says the insurer will also look to educate consumersabout assessments and the differences in coverage between Citizensand the private market.

The rate proposal now goes before the Citizens board forapproval. If accepted, the rate filing heads to the Office ofInsurance Regulation.