NU Online News Service, Oct. 25, 3:09 p.m.EST

Companion bills introduced in the Florida House and Senate wouldallow surplus-lines insurers to participate in a program todepopulate the state's supposed insurer of last resort.

The bills, sponsored by Rep. Jim Boyd, R-Bradenton, and Sen.Garrett Richter, R-Naples, are once again rippling the waters ofthe yearly debate about Florida's Citizens Property InsuranceCorp., which long ago eclipsed its intended purpose of being thelast-resort insurer in the Sunshine State due to several factors inthe Florida property-insurance market.

Legislation several years ago established a depopulation,or “take-out,” program and numerous domestic insurers sprung up,establishing their books based on policies taken from Citizens.

However, the take-outs have slowed and Citizens is growing againat an alarming rate—about 1,000 policies per day, the industrysays.

Samuel Miller, executive vice president of the Florida InsuranceCouncil, says the FIC has yet to develop a formal position on thelegislation but “something has to be done” to stop Citizens'growth.

“There has been very little take-out activity,” Miller says.“The depopulation of Citizens needs to be rejuvenated. Most primaryinsurers are not interested in taking out right now.”

There are a number of factors that are to blame, Miller says.Four years ago Florida lawmakers tried freezing Citizens ratesafter an outcry for property insurance affordability. The move hadconsequences—mainly the ballooning of Citizens because, underFlorida law, more residents qualified to enter the state-runinsurer.

Laws have been passed to allow Citizens to again increaserates—albeit gradually—but it's a losing game of catch-up, theindustry says. Primary insurers still consider Citizens acompetitor.

Additionally, approved take-out companies must maintain theCitizens' rate on a policy for one year after removingit—rates that have been proven to be far below actuarialsoundness.

“It's a conundrum,” says Lisa Miller, former state deputyinsurance commissioner and owner of lobbying firm Lisa Miller &Associates. “Primary insurers might look at removing policies butthey can't change the rate they need to do that. It is not goodbusiness practice.”

The bills to allow surplus-lines insurers into a Citizensdepopulation plan “creates and unleveled playing field,” she adds,due to the discrepancy in regulation between primary and surplusinsurers, which have more freedom of rate and form.

Nevertheless, primary insurers are “anxious to find ways todepopulate Citizens and keep it less competitive with the market,”Lisa Miller says.

The industry appears to commend lawmakers for trying, but is notsure this measure is the right fix. Its potential effectiveness isbeing questioned. As in, will policyholders chose (they have thechoice under law to stay with Citizens) to link with asurplus-lines insurer knowing there is a possibility their ratescould increase significantly?

The bills do have people talking. The Florida Property CasualtyAssociation had a meeting scheduled to discuss the legislation, asdid the board of the Florida Surplus Lines Assoc.

Under the bills, surplus-lines carriers looking to participatein the depopulation program would need to carry at least $50million in surplus, reinsurance for a 1-in-100-year probablemaximum hurricane loss, and maintain an “A-minus” rating frominsurance rating agency A.M. Best Co.

Also, notice must be given to policyholders to inform them thatsurplus-lines policies are not provided coverage by the FloridaGuaranty Assoc. In other words, if the surplus-lines insurer folds,the policyholder will be left with unpaid claims and norecourse.