Consumer Advocate Has Concerns Over
Citizens Deal
10/1/2012
By: Michael Peltier
News Service of Florida
THE CAPITAL, TALLAHASSEE, October 1,
2012..........Florida's insurance consumer advocate on
Monday called on the state-backed property insurer to
provide much more data surrounding a decision to loan
$350 million in surplus to private insurers willing to
take policies out of Citizens Property Insurance Corp.
In a letter to Citizens chairman Carlos Lacasa, consumer
advocate Robin Westcott put forth a lengthy list of
questions surrounding a deal approved in September by
Citizens' board of governors to provide 20-year, low
interest loans to private established carriers to
partially offset the risk associated with Citizens
policies.
"The Office of the Insurance Consumer Advocate shares
the Board?s goal of depopulating Citizens and reducing
the potential assessments on all property and casualty
policyholders in the state,? Westcott said in a letter
to the board. But, she wrote, "Citizens must assure
consumers and policymakers that a thorough cost-benefit
analysis justifies the commitment of up to $350 million
of Citizens? surplus, as this program would allow."
The loan program, to be funded with Citizens' surplus,
is an attempt to move up to 350,000 customers from the
state-backed insurance pool, which now handles more than
1.4 million policies.
The Citizens plan would allow a qualified private
insurer to borrow up to $50 million in exchange for
taking Citizens policies for at least 10 years. The
loans, referred to as surplus notes, would carry a low
interest rate and be repaid to Citizens over 20 years.
The loans are meant as an incentive for the companies,
which would be taking on more risk.
Because the state-run pool charges premiums that are
lower than a private company would offer, a gap exists
between what a private insurer would have to charge to
provide the policy and make a profit and what customers
are paying now.
Barry Gilway, Citizens new president and CEO, said the
plan is a cost-effective means of reducing Citizens
exposure while helping to re-establish a more vibrant
private market.
"The addition of the program approved today has the
potential of removing more than $1.2 billion in
assessment risk shouldered by all Florida
policyholders," Gilway said Sept. 7 when the idea was
approved.
Among the questions Westcott raised were how the firms
would be selected, what enforcement mechanism Citizens
would have to make sure the money was repaid and what
models were used to come up with the $350 million
figure.
In response to Westcott's letter, Associated Industries
of Florida urged Citizens leaders to go ahead with the
loan program, saying Citizens is "a ticking time bomb
that must be defused now,"
"Time is of the essence and this plan should not be
delayed," AIF President and CEO Tom Feeney said in a
statement. .
