Private Market Shows Willingness to Take Out Citizens' Policies

Insurance Commissioner Kevin McCarty said these stimulus programs are responsible for increasing the capital in the market and the creation of new companies. "Many of these companies are among the more than 20 licensed in Florida since 2006, that have brought more than $3.4 billion in new capital into the market," he said. "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."

Florida Association of Insurance Agents President Jeff Grady agreed with McCarty. He said that agents have plenty of options when it comes to finding homeowners' coverage for their clients. "Our reports show that agents are covered up with markets," he said.

One of the keys to Citizens' population level is the state's consumer choice law, which allows agents to reject a take-out offer if the take-out company doesn't offer the agent an appointment or the agent chooses not to align with the take-out company. The law, which has often been referred to as the agent protection act, has often been pointed to as a barrier to depopulating the state-run insurer. That argument, however, is largely moot, given the growth of the domestic market and the number of policies diverted from Citizens into the private market.

Recently, however, regulators have modified the consumer choice program to make sure that consumers are fully aware of any offers of coverage. At issue is Citizens' practice of steering take-out companies away from policies written by either captive agents or agents that have rejected all take-out offers in the past.

Consumer Choice

The state's consumer choice law has been on the books for years and was a response to the old Florida Property and Casualty Joint Underwriting Association's depopulation policies. Under the statute that was in force back then, insurers were no longer eligible for association coverage if they received an offer from a take-out company. The law also allowed insurers to remove large blocks of policies from the association regardless of any objections by consumers or their agents. That meant consumers often had to accept coverage from a smaller company regardless of their size or financial status. Consumers also faced the prospect of ending a long relationship with an agent when a take-out company wouldn't offer the agent an appointment. That is not to mention the financial impact it had on agents.

In response, lawmakers enacted the consumer choice law that allows a consumer to stay in Citizens if the agent rejects a take-out offer by failing to secure an appointment with the take-out company. Grady said that for most independent agents, the law change created greater flexibility for agents and consumers. Free to work with multiple companies, independent agents had little trouble gaining appointments and, therefore, their clients had more options when it came to securing coverage. For captivate agents, such as those with State Farm and Allstate, it protected their books of business.

For the most part, consumer choice has worked with little controversy. However, a procedural change by Citizens attracted the attention of regulators. Described as a "time-saving measure," Citizens decided to notify take-out companies of agents and agencies that would not agree to a take-out offer under the consumer choice law. While this applied to some large agencies, it was mainly targeted at captive agents from companies like State Farm and Allstate, who are prohibited from doing business with other carriers. This had the effect of steering take-out companies away from policies housed with those agents. As a result, many policyholders were never aware that they could have had an offer of coverage.

McCarty said this was an inconsistent application of the law, which protected the interests of some consumers over others. "Without requiring policyholders to be informed that they could be moved into the private market at or below their current premiums, the take-out process fails to provide real consumer choice," he said. "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."

Under an OIR order, regulators are making two changes to the consumer choice program. First of all, as of May 1, Citizens must provide take-out companies with a list of all eligible take-out policies without instructing the companies to avoid choosing policies from agents and agencies who previously rejected take-out offers in the past. Secondly, if the agent refuses the take-out, Citizens is required to notify the policyholder of their agent's refusal and provide the policyholder with the contact information of the take-out company.

A Matter of Interpretation

The application of the consumer choice law has always been open to some interpretation. FAIA says that the law was never designed to prevent insurers from soliciting policyholders. On a practical level, however, if an agent rejects an appointment or fails to secure one from a take-out company, it acts as a veto against any take-out offer. That is why Citizens decided to steer take-out companies away from policies housed by captive agents and other large agencies that won't accept take-out offers.

From the regulator's point of view, this benefits the economic interests of agents at the expense of policyholders, who otherwise would have the choice to consider a take-out offer. That is why regulators have clarified that companies can go over the heads of agents and solicit policyholders directly. While a staunch supporter of consumer choice, FAIA's Grady says that the OIR's interpretation of the statute is in agreement with the agents' association. "Companies can go right around agents and that is allowable by law," he said.

While that may be a correct reading of the statute, regulators believe that agents still hold the key to take-outs. Therefore, regulators decided to level the playing field by notifying Citizens' policyholders if their agents had rejected an offer of coverage and provide the contact information of any carrier offering a policy. Regulators say this is an important modification to consumer choice because it opens the door for take-out companies to make offers to policyholders who otherwise would be blocked from considering their coverage options.

This is especially important when it comes to homeowners covered by State Farm Florida Insurance Co., which recently announced that it is dropping 50,000 policyholders in coastal counties. McCarty maintains that the company — and others like it — should not be able to pull back from the market by dumping thousands of policyholders into Citizens while retaining other their parts of their book of business. McCarty says this is not right because it allows insurers to retain the lucrative portion of their market share while placing the burden of their high-risk accounts on the back of Citizens and policyholder assessments. By requiring Citizens to notify policyholders of an agent's refusal to accept a take-out offer, regulators hope to break up this business practice.

FAIA says the changes in the consumer choice program is probably going to generate a lot of calls from clients who receive letters from companies offering to assume their Citizens' policies. Rich Fidel, a partner in the law firm of Colodny, Fass, Talenfeld, Karlinsky and Abate, which represents several take-out companies, said the OIR's order should have a positive effect. "This is good thing," he said. "Policyholders will probably better understand their coverages as they talk to their agents about pricing, assessments, and the other pros and cons of switching companies."

Take-Out Companies

While regulators work to clarify the application of consumer choice, one thing is clear: There is plenty of interest among companies and investors to assume policies from Citizens. The OIR recently released a list of 10 companies that are authorized to remove up to 450,000 policies. So far they have removed more than 100,000 policies that otherwise would be covered through Citizens. The companies are as follows:

American Integrity Ins. Co., of Florida, has been approved to remove 75,000 policies. So far, it has removed 34,812 policies.

First Home Ins. Co., has been approved to remove 30,000 policies. So far, it has removed 10,788 policies.

Landmark One Ins. Co., has been approved to remove a total of 50,000 policies. Of that total, it has currently removed 10,995 policies.

Florida Peninsula Ins. Co., has received authorization to assume 80,000 policies, and has removed 16,272 policies to date.

HomeWise Preferred Ins. Co., has received authorization to assume 62,000 policies, and has removed 11,789 policies so far.

Southern Oak Ins. Co., has been approved to take out 75,000 policies, of which it has assumed 6,678 policies.

Homeowners Choice Property & Casualty Ins. Co., has been given the green light to remove 30,000 policies, and has removed 9,548 policies to date.

Northern Capital Ins. Co., is approved to remove 20,000, and has removed 4,023 policies.

Sunshine State Ins., Co., is poised to assume 23,607 policies, and has already removed 4,412.

Argus Fire & Casualty Ins. Co., has received clearance to remove 18,000 policies.