Citizens Expected to Expand in 2011

This is yet another reminder that despite five years without damaging storms, Florida's insurance marketplace remains volatile.

It is also not a situation that even those who run Citizens are enthusiastic about.

James Malone, the chairman of Citizens' Board of Governors, said that he hopes the coming year will bring changes in the law that will help the carrier finally shed some policies.

 Malone said that Citizens is now the third largest underwriter of property insurance in the nation, yet unlike other carriers it cannot spread its risk beyond the state boundaries.

"We need to find a way to mitigate that risk and the way to do that in our humble opinion is to make it attractive for private insurers to come back into the market,'' Malone said. "…Perhaps we can get back to our mission as an insurer of last resort instead of insurer of first resort."

The main fear about Citizens remains the same: The bigger the carrier is, the bigger the risk that a major storm will create unsustainable losses that will force Citizens to turn to private insurance customers to help pay the bill.

Citizens' top officials continue to insist that the company is on better  financial footing today than it was when Florida was slammed by eight storms in the middle of the last decade. One sign of progress, they said, is that in the coming year Citizens has no plans to borrow money to bolster its financial reserves.

"Citizens is stronger than ever before,'' said Citizens' President and CEO Scott Wallace.

However, Citizens could be forced by 2012 to shed some of its coastal policies under a mandate that could create a huge disruption in the market. An eight-year-old state law requires Citizens to reduce its probable maximum losses by 25 percent in its high-risk accounts that cover coastal areas.

Such a move would require Citizens to non-renew nearly 200,000 policies. However, since it is unlikely that the private market could absorb these policies, they would likely just shift to other Citizens' accounts.

Another consequence is that this change would actually reduce the areas along the coast where private property insurance carriers could sell policies without windstorm coverage. It is likely there will be a push to get legislators to repeal or cancel this mandate during the 2011 session, when it is anticipated they will once again put together a rewrite of Florida's property insurance laws.

Wind Mitigation Discounts  Top Priority for 2011, 2012

One of the top priorities for Citizens in the next two years is to confront property owners who may have been granted wind mitigation discounts they did not deserve. These are credits given to people who stormproof their homes, such as putting in certain types of roof connections or installing hurricane shutters.

Last year Citizens inspected more than 7,000 properties, resulting in more than $5 million worth of premiums being restored. That effort will be greatly expanded during the next two years as Citizens plans to push ahead and inspect roughly 94,000 properties during 2011 and more than 200,000 properties in 2012.

The initial estimates show that Citizens could wind up taking in an additional $143 million in premiums the next two years if the trends shown by the first batch of inspections hold. The net impact, after the cost of the inspections is subtracted, will be $101.6 million.

Some members of Citizens' board, however, have begun suggesting that the company should attempt to get even more money from policyholders. Citizens is only now recovering the amount lost in past wind mitigation discounts by increasing premiums at the time of policy renewal. This is being done on the theory that Citizens cannot ask for more money more than 90 days after the policy was renewed.

Carlos Lacasa, a former state legislator and board member, said those who unfairly received a discount on their insurance bills were being subsidized by other ratepayers. He said that the contract between Citizens and its customers should give the company the legal right to ask for repayment.

That view is not shared by Belinda Miller, the state's deputy insurance commissioner, who said she believed that Citizens was "taking a reasonable approach right now." Miller told Citizen's officials that the company can go after those policyholders suspected of fraud, but she said that many people may have received a discount on their policies without understanding the rationale for the original discount.

"I would just encourage a deeper analysis before you go and take premium back from people who have not committed fraud," Miller said.

Despite Miller's concerns, Citizens legal team is expected to take a "fresh look" at whether the carrier can recover money from policyholders in the coming year. Malone admits that such a move will not "come without scrutiny" and a "lot of oxes will be gored" but he supports considering the move.

Citizens' Emergency Assessment Going Down in 2011

There is one piece of good news about Citizens for 2011.

Starting in July the emergency assessment now charged on property insurance bills in the state will likely go down slightly. The assessment was first put on insurance bills in 2007 to pay back money Citizens borrowed to pay claims related to Hurricane Wilma.

Citizens officials said the assessment is generating more money than what is needed to pay off the annual debt service payments. Citizens is paying about $142 million a year to pay back the Hurricane Wilma bonds. The emergency assessment generated $229 million in 2009 and $182 million in 2010 and will generate another $174 million by next summer.

Citizens' board decided in December to reduce the emergency assessment from 1.4 percent to 1 percent, which translates into a 28.5 percent reduction. The reduction still needs to be approved by the Office of Insurance Regulation.