Florida Last-Resort Insurer Proposes 7.5% Homeowners Rate Hike

NU Online News Service, July 17, 3:32 p.m. EDT

Florida's last-resort insurer unveiled a plan to raise homeowners' insurance rates by an average of 7.5 percent—far below actuarially sound rates in many territories.

The board of Citizens Property Insurance Corp. during a workshop in Miami on July 16 revealed its plan to lawmakers, who gave mixed reactions.

"I don't think it was by any means the tongue-lashing that has been reported," says Barry Gilway, newly-appointed CEO of Citizens, to PC360.

"The bottom line is we are required by statute to file actuarially sound rates and if we were to do that we'd be seeking an average increase of 34.2 percent statewide," Gilway says.

Some areas, especially on the coast, require a much larger increase to be actuarially sound, Gilway says. For instance, Monroe County needs an increase of 166 percent. Dade County could use a 72 percent hike.

However, state law only allows Citizens to increase rates no more than 10 percent on any one policy. After applying this cap, Citizens arrived at the average 7.5 percent increase.

"It is important to note that rate increases vary dramatically throughout the state," says Gilway, who remained in Miami on July 17 to continue talks with legislators.  "In fact, close to 40 percent of territories don't require an increase."

Gilway says no one would ever recommend the kind of rate increases needed to immediately bring Citizens to a state of actuarially soundness—though it would most surely restore Citizens as the true last-resort insurer, and not the largest writer of property insurance in the Sunshine State.

But there is a balancing act that needs immediate attention. Gilway explains: "Insurers of about 76 percent of the market Citizens does not have are getting rate increases in excess of what we have proposed."

This means the gap between the rates a homeowner can get on the private market and the rate the same homeowner can get from Citizens is widening.

"That is dangerous," Gilway says, because a homeowner can turn to Citizens if the rate on the private market for the same property is 15 percent higher than Citizens' rate.

Therefore, Citizens continues to remain the cheaper option for many homeowners.

Citizens and lawmakers are also mulling whether the 10 percent cap applies to only renewal business. Gilway says a legal analysis of the law concludes Citizens could increase rates higher for new business.

"There is not a clear consensus about this and many more conversations need to take place about it," Gilway says. "There is a lot of legislative resistance."

Citizens will now focus on other exposure-reducing tactics by making changes to its policies to make it a less attractive option for homeowners.

Gilway says the insurer will also look to educate consumers about assessments and the differences in coverage between Citizens and the private market.

The rate proposal now goes before the Citizens board for approval. If accepted, the rate filing heads to the Office of Insurance Regulation.