Legislators, Advocates Wary of Citizens Incentives for Private Insurers to Take Customers

9/6/2012
By: Charles Elmore
Palm Beach Post

Florida’s last-resort insurer Citizens, whose board meets Friday, is considering a plan to write up to $300 million in checks from its ratepayers’ surplus to provide incentives for private insurers to take hundreds of thousands of its 1.4 million customers.

The payments are described as loans to be paid back over 20 years, according to a plan approved in concept by a Citizens committee today. The idea is for private carriers to take customers for 10 years under a “depopulation” plan.

Citizens president Barry Gilway called it “an unprecedented opportunity.’ But legislators and homeowner advocates warned of potential corporate welfare in what they called a hurried move to hand out some of the company’s $6 billion surplus.

“I have several concerns,” said state Rep. Frank Artiles, R-Miami. “It’s easy to conclude this rushed process is by design.”

State insurance consumer advocate Robin Westcott urged more study of provisions that would make the loans partly forgiveable if storms hit. Up to 20 percent of the loans could be written off in each year a hurricane hits Florida for the first five years, according to Citizens documents. That could amount to “free reinsurance,” Westcott said.

Citizens is Palm Beach County’s largest property insurer with 140,000 customers.

“I do not think it’s a good idea for Citizens Property Insurance Corp. to engage in corporate welfare whereby they offer incentives with premium dollars to private insurers to take policies,” said Sean Shaw, a Tampa attorney who heads a homeowner advocacy group, Policyholders of Florida. “What guarantee is there that these insurers won’t take the money and leave Florida? Or raise rates? Or non-renew?”

A plan under consideration would provide a range of protections, company officials said. It would let Citizens customers choose to opt out of going with the new insurer and cap rate increases at 10 percent a year for three years under the new carrier.

The full Citizens board is expected to vote on whether to move forward with the plan at a meeting Friday in Orlando.

One question is whether the new plan complicates takeout plans already in motion without the incentives. Today, the state’s Office of Insurance Regulation said it approved the removal of 150,000 Citizens policies by four private carriers in November. They include Florida Peninsula Insurance Co. (35,000 policies), Homeowners Choice (75,000 policies). Southern Fidelity (30,000 policies) and Southern Oak Insurance Co. (10,000 policies).

Florida Insurance Commissioner Kevin McCarty said the moves pointed to a “reinvigorated homeowners’ insurance marketplace” in a statement, noting they have the potential to make 2012 the largest take-out year for Citizens since 2008.

OIR’s statement said four other companies also expressed interest in removing policies from Citizens if the board approves financial incentives. They include American Integrity Insurance Co. (50,000 policies), Tower Hill Preferred Insurance Co. (43,250 policies), Tower Hill Select Insurance Co. (38,212 policies), and Tower Hill Signature Insurance Co. (49,825 policies).

OIR urged in a letter that Citizens should give “first priority to proposals that do not require Citizens to pay a financial incentive, such as a surplus note.”
Also today, company documents showed Citizens has cost homeowners $155 million in higher annual insurance premiums after controversial reinspections for storm-resistant discounts. The company has cleared $116 million after paying inspectors.

The latest numbers show 74 percent of reinspections at 257,589 homes through July 31 resulted in higher premiums, 10 times the 7 percent who saw premiums reduced. The average boost has been $600 or 24 percent, but some consumers have seen annual premiums double.

An investigation published Sept. 2 by The Palm Beach Post found Citizens and its contractors rejected more than 90,000 reports by inspectors, with homeowner premiums rising even more than average when inspectors were overruled.

Citing media reports among other factors, company executives have already announced such changes as a second, free inspection within 12 months of a Citizens visit if the homeowner disputes the results or makes property improvements. Loss of credits will be suspended when an inspector says he is unable to get into an attic.

Committees today discussed ideas for the company’s full board to consider Friday, such as materials to “educate policyholders and agents about wind mitigation features, credit rules, required criteria and alternative documentation that can be utilized to qualify for credits.”