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

By law, Citizens is required to charge rates that are higher than rates charged by private insurers so that the in-surer is not competitive with the private market. Specifically, the residual market must examine the rates charged by the 20 largest carriers offering homeowners' insurance in the state and set its rates above the average rates charged by those top 20 carriers in any given territory. Under Citizens' take-out plan, policyholders that are offered coverage by a private insurer are automatically declared ineligible for Citizens' coverage.

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

Specifically, since the two companies are nowhere near the top 20 carriers, they took the position that they could charge even higher rates than otherwise allowed by law. They also decided to implement their rate filing on a use-and-file basis, in which they charged policyholders rates before they were examined by regulators. As a result, many policyholders were facing premium increases of 100 to 200 percent and had little choice but to pay the premiums since they were ineligible for Citizens' coverage and they couldn't find an alternative choice in the voluntary market.

Regulators rejected the rates utilized by Florida Peninsula and Homewise based on the fact that the rates were partially based on rates proposed by Citizens for Monroe County. Citizens had requested that in Monroe County, homeowners' rates increased by an average 25.9 percent and manufactured housing 15.2 percent. McCarty rejected the premium changes in favor of a 35 percent decrease in homeowners' rates and 15.2 percent rate cut for manufactured housing. Since the Monroe County rates had been denied, McCarty declared that the rates charged by Florida Peninsula and Homewise were likewise void.

“The Citizens take-out provisions which the affected policyholders fall under were written to achieve a good end. However, because of unintended consequences, these people are facing a financial nightmare,” McCarty said. “They were already being charged the highest insurance rates where they live only to see their premiums sky-rocket even higher. Clearly this is not what the law intended, but fortunately the law does allow the relief I am ordering.”

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Citizens' Take-Out Companies Under Fire

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