The majority of governmental actions are highly technical and, therefore, the general public rarely notes most public-policy decisions. This is especially true when those legislative actions are made against the backdrop of an even larger problem such as the course of homeowners' rates. A long slate of insurers are seeking double-digit rate increases, included the big three, Citizens Property Insurance Corporation, State Farm Floridian, and Allstate Floridian Ins. Co. And regardless of how each of insurers may vow to eventually lower rates, those promises ring hollow to the state's many policyholders who are facing higher premiums, and, in some cases, are being force to evaluate whether to continue making Florida their home or corporate headquarters.
At the recent Florida Surplus Lines Association annual meeting, Citizens Board Chair Bruce Douglas put it bluntly, "Rates are not going down and anybody who says they should go down, doesn't understand they need to go up." Douglas' comments came just before Insurance Commissioner Kevin McCarty slashed the market of last resorts' requested for an overall 25.9 percent increase in homeowners' policies in Monroe County, calling instead for a 32.2 percent reduction. Likewise, McCarty agreed to a 15.2 percent increase in mobile home rates, although Citizens had initially asked for a 20.4 percent increase. Since Monroe County basically covers the Florida Keys, there is no viable voluntary market. Citizens currently has filed a rule challenge with the Department of Administrative Hearings on the issue.
In all fairness to McCarty, earlier this year he ordered a statewide average 16.1 percent increase in homeowners' rates and a 6.7 percent in mobile home rates. He also approved a 21.5 percent increase in dwelling and fire rates and made no adjustment in condominium rates. Citizens' rate determinations are set out in the law and must not be competitive with the private market. "Our actuary staff has rigorously examined these rates, and I am confident that the approved adjustments achieved adequate rates given the risks involved," he said.
A Few Dollars More
As much pressure as there is on Citizens from policyholders and the press, things could be substantially worse. Earlier this year, the insurer was facing a $1.73 billion deficit in its high-risk account due to losses from the 2005 hurricane season. Fortunately for policyholders, that deficit was reduced by a one-time $715 million appropriation, which the legislature declared came in the form of increased sales taxes on supplies to rebuild homes and other structures. The legislature also made several provisions to further cushion policyholders from having to make a large out-of-pocket payment.
Even with the one-time appropriation, Citizens still faced the need for other financial resources to retire its debt. If the legislature had not acted, policyholders would have faced roughly a 12 percent regular assessment. The insurer's board, however, decided to raise an additional $163 million by levying a two percent regular assessment, which is allowable under the Citizens' statutes. As a result, a policyholder with a premium of $1,000 will pay $20.70. To completely pay off the deficit, the board also voted to levy an emergency assessment of $786 million on policyholders, which will be paid over a 10-year period.
While Citizens' board members have been busy addressing the financial affairs surrounding the 2004 and 2005 hurricane season, they have also taken note of what the residual market's needs may be this year. A major building block of Citizens' finances comes in the form of a $3.05 billion municipal bond issuance, which is earmarked to help pay policyholder claims from hurricane losses. The $3.05 billion bond issue is the largest municipal bond deal in Florida history.
Citizens President Bob Ricker said the insurer has over $5 billion in reserves to pay claims, when adding up the proceeds from the bond transaction, the availability of reinsurance from the Florida Hurricane Catastrophe Fund, and other Citizens' money. "Our policyholders should be aware that we are in good financial shape and that if disaster strikes we've got them covered," said Bob Ricker, president of Citizens.
Even as Citizens has made strides toward building some storm wall between itself and the possible need for catastrophic funding, the residual market continues to try an overcome the dismal performance in claims adjusting during the 2004 and 2005 hurricane season. Douglas acknowledged that the insurer had little control over its adjusters during that period and since then the goal has been to create a centralized system, which would allow the insurers to follow a claim from its first contact all the way to its conclusion. To meet that goal, he said, the insurer is establishing a facility in Jacksonville to handle all of its policy administration.
Oops! Elections Are Coming
However, given that it is an election year and insurance is arguable the number one concern of voters, Citizens has not escaped the attention of politicians seeking office. Attorney General Charlie Crist, fresh off of defeating Chief Financial Officer Tom Gallagher in the republican primary for governor, has already called Citizens to task.
Florida law requires that the cabinet must annually approve Citizens' plan of operation by October 1st. At a recent cabinet meeting, Crist attacked the plan of operation for allowing the insurer to use outside counsel to sue the state when the insurer disagrees with the findings of the Office of Insurance Regulation concerning rates. Since May, Citizens has retained the use of outside counsel in four suits against the state concerning rates and other issues.
Crist said there was inadequate supervision over the hirings, which he said should be reviewed and approved by Citizens' board and the governor and the cabinet. "Citizens used homeowners' money to hire attorneys so they could sue the government in order to force policyholders to pay even more," said Crist in a statement. "The taxpayers were paying to sue themselves, so that some of them could pay even more. This is totally unacceptable."
Crist also said that Citizens needed to improve its customer service and convinced the cabinet to endorse a motion calling for Citizens to hold three public meetings to get the public's input on the insurer's performance before putting a permanent plan of operation in place.
Let's Work Together
Ricker told reporters that Citizens welcomed the hearings and working with the public and the cabinet to workout any unresolved questions and places where customer service should be improved. He noted that the insurer currently has 1.2 million policies in force and is receiving more than 50,000 new applications monthly. Ricker projected that the insurer is expected to cover over 1.5 million policyholders by year's end.
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