1/19/2012
By: Casey Morrell
Citizens Property Insurance Corp. was alway meant to be
a Florida resident’s last, best hope for property
insurance. When nobody else would cover your home or
business, you could always go to Citizens for a policy.
But these days, there are fewer firms than ever writing
insurance policies in Florida, so the state’s so-called
“insurer of last resort” has become the only
insurance option for many homeowners – for others, it’s
the preferable option because it offers coverage and
rates competitive with those of private companies.
So when Citizens sent out letters to policyholders late
last year notifying them that, as of 2012, the company
would no longer be providing coverage for carports,
screen rooms, patios, pool cages or awnings – valuable
parts of a property that can amount to up to a third of
the footprint of a typical home in Florida – some were
alarmed. If you’re already with the insurer of last
resort, which then drops your coverage, who’s going to
cover you?
“I would like to know who is going to pay to have the
debris these attachments will create removed from our
streets after a catastrophic hurricane devastates
Florida,” an anonymous home-owner and insurance agent
wrote in a letter sent to media outlets throughout the
state. “I would also like to know who will pay to
rebuild the damaged portions of our homes the loss of
these attachments will create in order to make our homes
livable again.”
Citizens is a nonprofit, state-run insurance company
established in 2002 to address the fact that private
property insurers were fleeing the Florida market due to
hurricane risk. The company picked up the slack as
insurance companies departed over the years, and it’s
now the state’s largest insurer, providing comprehensive
coverage for nearly 1.5 million commercial and
residential locations as of Dec. 31, 2011. For
perspective, that’s about 300,000 more properties than
it insured five years ago and almost double what it
insured at this time in 2003. The company’s total
liabilities (the amount it would have to pay out if
every property it covered was destroyed, referred to in
the industry as “exposure”), ballooned from $193 billion
in 2003 to more than half a trillion dollars today.
According to Candace Bunker, a spokesperson for
Citizens, such high levels of liability don’t mesh well
with Gov. Rick Scott’s plans to “return Citizens into
the insurer of last resort.” The governor wants to put
Citizens back into what’s called the residual
marketplace – in other words, reduce people’s reliance
on it and urge them to choose private companies that
offer comparable rates and products.
Now Citizens is changing how it assesses properties by
redefining what “comprehensive” coverage actually is.
The goal – which butts up against the original mission
of Citizens – is to not only reduce the company’s
overall liabilities but also to spur consumers to
consider different insurers.
According to an email Citizens sent to insurance agents
in November, “there is no buy-back option for structures
that are no longer covered.” Translation: Policyholders
will not be able to pay more money to cover the excluded
parts of their property. The properties will be covered
under existing policies until they expire; when the time
comes to renew, coverage will be eliminated from the new
policy.
Interestingly, Florida has a bill of rights for property
insurance customers, issued by the Florida Department of
Financial Services. One of its tenets includes the right
to “obtain comprehensive coverage.”
Don’t these changes to how Citizens insures property
violate that mandate? Not necessarily, according to
Robin Westcott, Florida’s Insurance Consumer Advocate
and executive director of the Medicaid and Public
Assistance Fraud Strike Force.
“It’s probably not going against the intent of the law,
which is to make sure that when you’re offered a policy
that it has appropriate coverages for your home,” she
says, though she says this will likely “be a question”
as the Florida Office of Insurance Regulation reviews
renewals this year. “I think, for me, the overall
question becomes how we are dealing with it, or if
Citizens is realigning themselves to look more
traditional or have a policy that’s offered in the
marketplace.”
Westcott agrees with the philosophy of returning
Citizens, which is now an active competitor in the
insurance market rather than a last-ditch alternative,
to the residual market. One of the problems with a
state-run company like Citizens ballooning in size is
that taxpayers are ultimately on the hook for covering
the company’s liabilities – which could be disastrous
should a natural disaster result in more claims than the
insurance giant can easily absorb.
Michael J. Letcher, who publishes the Home Insurance
Buyers Guide, calls this a “critical moment” for the
state. “There is too much exposure to Citizens and just
not enough money,” he says. He suggests that the state
offer incentives for private insurers to return to
Florida.
At the moment, though, there may not be enough private
coverage to go around. “I’m very concerned for
policyholders who have no other choice but a Citizens’
policy right now, because the whole thought process
behind going back to a residual marketplace is that the
private carriers are going to fill that gap,” Westcott
says. “My guess is that the private marketplace will
create and will go out there and market some products
that will be able to fill the gap. But those aren’t
there yet for policyholders. We get the cart before the
horse.”