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Citizens or private insurers?

Julie Patel, Sun-Sentinel

11/2/2011

If you own a home or condominium in South Florida, you don't have many options when it comes to property insurance.

One of those options, state-backed Citizens Property Insurance, could soon become less attractive. It's raising premiums by up to 10 percent a year, and Gov. Rick Scott, many legislators and the insurer's new board want the state-backed insurer of last resort to have fewer policies.

Legislation was filed in October to allow less-regulated insurers, called surplus lines, to take over Citizens' policies.

Faced with those choices, should you go with Citizens or a company you've never heard of? We'll answer some of the most common questions.

Q. Which is cheaper?

A. Citizens, the state's largest home insurer, is often cheaper than private insurers because the legislature caps its rate increases at 10 percent a year, it is tax-exempt and, as a state-run operation, it doesn't have to make a profit.

But it's important to know that everyone in the state may be charged fees if it runs out of money to pay claims after a storm, and the fees could be high - up to 45 percent of your premium - if you're a Citizens policyholder.

Given the choice between Citizens and a company that charges more upfront, many home­owners take Citizens, knowing they risk paying more later, said Robin Westcott, the state's insurance consumer advocate.

Q. Which provides better service?

A. Newer companies don't have a track record, so consumers may not find much information on them.

But private insurers, new or old, must compete with each other and Citizens for business, so they're more likely to care about what their policyholders think.

Citizens, on the other hand, was among 13 insurers that received the lowest proposed grades on a report card drafted by the state's former insurance consumer advocate. The grades were based on customer complaints to the state about claims from 2004 through 2008. That includes the 2004 and 2005 hurricanes. Citizens said it has improved since then.

Some Florida-based companies offer online claims filing and other perks that no-frills Citizens may not, Westcott said.

If there isn't much of a price difference between Citizens and a private insurer, "then it comes down to who has the best service that fits the needs of the customer," she said.

Q. Which is more likely to pay my claim?

A. If an insurer was formed after Hurricane Wilma, consumers won't be able to find much information about how the company handles hurricane damage claims. Newer insurers haven't had time to build their claims-paying reserves, so they're arguably more prone to financial problems.

That said, many Florida-based companies have been around for years and are well-capitalized.

State law requires insurers to have $5 million in claims-paying reserves, and legislators recently increased the minimum for existing insurers to $10 million by 2016 and $15 million by 2021.

The newest insurers, authorized to operate on or after July 1, need $15 million from the start.

If most private insurers fold, policyholders with claims wouldn't be completely out of luck: A state program would take over the claim. The exception would be homeowners who choose the less-regulated, surplus lines companies.

Citizens, the state's largest insurer, with nearly 1.5 million policies, has more than $5 billion in claims-paying reserves.

Citizens has another advantage here: It can borrow money after a hurricane to help pay claims and charge fees to nearly all Floridians to pay back the loan. The state legislature gave $715 million in 2006 to help the insurer pay hurricane claims. It's unclear if that would ever happen again.

One disadvantage of Citizens is that the insurer argues it can't be sued for "bad faith" in claims disputes with policyholders, as private insurers can. Critics say that can lead the insurer to deny, delay or low-ball some claims.

Q. How do I find insurers and compare them?

A. Check which insurers have the most policies in your county, their contact information and a comparison of their rates for two particular types of homes at the state's Consumer Home Owners Insurance Comparison Electronic System website, www.floir.com/choices .

Shop around with several independent insurance agents because each will represent a different combination of companies. Ask the agents for financial health ratings for each insurer that provides a quote. Find an independent agent near you at www.faia.com/Custom/agentlocator.aspx, and check that the agent is licensed at www.myfloridacfo.com/Data/AAR_ALIS1/index.htm .

Consider trying the state's free referral service, the Florida Market Assistance Program. It matches customers who can't find property insurance with licensed agents and insurers selling new policies. You can register for the program at www.fmap.org or call (800) 524-9023 for help .

Check complaints on insurers for claims handling, customer service and other issues with the state Department of Financial Services, (877) 693-5236, or the National Association of Insurance Commissioners' website, http://eapps.naic.org/cis.

Research how much money insurers have to pay claims at the NAIC website or request financial statements from the Florida Office of Insurance Regulation, (850) 413-3140 . You can check an insurer's license at www.floir.com/companysearch .