Policyholders placed by their insurance agents with Citizens, Florida's state-run insurer of last resort, can't be left in the dark if there is a private insurer willing to give them homeowners coverage, under a new regulatory order.
Tom Zutell, a spokesman for the Office of Insurance Regulation, said some agents who were unwilling to lose a commission had failed to make such notification, as had Citizens.
He explained that some exclusive agents, whose companies were unwilling to cover the agents' clients, would place their customers in the state pool and would not notify them if another private company was willing to take the homeowner's business out of Citizens.
Mr. Zutell explained that when private companies had been given customer lists by Citizens they would be told that agents for certain policyholders were rejecting business. The private insurers going to Citizens for business, "takeout companies," would as a consequence delete those customers' names and not approach them, he said.
Now, said Mr. Zutell, Citizens must notify insureds that there is a company that wants their business and can no longer issue what amounts to an "off-limits list."
According to OIR, some policyholders were never told of the private carriers' interest and may never have known that they could have changed their coverage.
"Without requiring policyholders to be informed that they could be moved into the private market at or below their current premium, the take-out process fails to provide real consumer choice and is contrary to state objectives to reduce the exposure of Citizens," said State Insurance Commissioner Kevin McCarty.
To remedy the situation, Mr. McCarty issued his notification order, which is due to take effect May 1. It requires Citizens to send all policies eligible for removal from Citizens to take-out companies for their selection regardless of which agents are involved.
If the agent refuses to move the policy, Citizens must then directly notify the policyholder of their agent's refusal and provide them with contact information for the take-out insurance company.
"Thousands of Citizens' policyholders who may have been kept in the dark under the old process now will have the opportunity to decide for themselves if they wish to be removed from Citizens and placed with a private insurer," Mr. McCarty said.
Also, the OIR announced that ten insurers had been approved by the state to remove policies from Citizens over the next year. Some have already begun the process, while others will start removing policies in April. In total, the OIR said over 400,000 policies will be moved from Citizens to the private market with equal coverage for the homeowner at equal or lower rates.
"Many of these companies are among the more than 20 licensed in Florida since 2006 that have brought over $3.4 billion in new capital into the marketplace," said Mr. McCarty. "The fact that they are standing in line to remove hundreds of thousands of policies from Citizens is a testament to an increasingly competitive market."
Citizens has also taken a write-down of $88 million on the value of securities purchased for the company through a short-term investment fund managed by the State Board of Administration. By some estimates the value of those securities fell sharply, from $271.6 million to $183 million.
The drop off in value came when the issues were downgraded beginning last summer. The money for the investments was part of Citizens' surplus, which was at $2.64 billion at the end of 2007 and is expected to rise to $4 billion this year.
The issue has drawn the interest of state legislators, who are holding a meeting of the House Insurance Committee to examine Citizens' ability to pay claims in the wake of a storm.
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