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Editorial: Citizens Plan Looks Like $350 Million Boondoggle

10/2/2012
By: Randy Schultz
The Palm Beach Post

In 2008, the Legislature swiped $250 million from the surplus of Citizens Property Insurance Corp. The money was a subsidy to private companies, so they would take policies out of state-run Citizens.

At the time, Citizens had roughly 1.2 million policies. Now, Citizens has roughly 1.5 million policies.

Since that giveaway worked so well, Citizens itself has decided to try an even bigger one. The Citizens board wants to take $350 million from its $6 billion surplus — which would pay claims in a bad storm year — and offer it to private companies. Combined with earlier “depopulation” efforts, the hope is that 300,000 to 350,000 policies might be taken out of Citizens this year.

Most Citizens hurricane policies are in South Florida, and customers have good reason to be wary of this supposedly great deal. In theory, the money goes to the companies as 20-year loans, with a limit of $50 million per company. In theory, Citizens customers who go with the company that offers a private policy get the “guarantee” of a 10-year deal, with rates rising no more than 10 percent a year for the first three years. After that, however, there is no annual rate limit.

On Monday, Insurance Consumer Advocate Robin Westcott sent a letter with two pages of questions about the plan to Carlos Lacasa, the Citizens board chairman. She asked how Citizens intends to enforce that 10-year “guarantee,” and whether there will be “exceptions.” She asked if there had been outside study of the program. She asked how Citizens will determine if companies participating in the program are financially sound, and wouldn’t collapse themselves after a storm and take the subsidy with them.

On Thursday, advocates held a conference call to tout the program. Consider, though, some of those advocates’ conflicts of interest. State Rep. Bryan Nelson, who chairs the House Banking and Insurance Subcommitee, owns an insurance agency. Dave Newell works for the Florida Association of Independent Insurance Agents. Tom Feeney is president of Associated Industries of Florida, whose membership is said to include insurance companies. All have a reason to want higher insurance premiums overall and more policies in the private market.

“We are prepared to answer questions” about the plan,” Citizens President Barry Gilway said, adding that some provisions are “still being refined.” No kidding. This plan whirled up like a quick-developing tropical storm. Mr. Gilway and Rep. Nelson say speed is necessary to have the policies out before next hurricane season, thus reducing Citizens’ exposure. Among the many things Ms. Westcott has questioned, however, is how Citizens calculated the potential reduction in exposure.

Gov. Scott wants to get policies out of Citizens in the worst way, and Citizens may have found it. The Post has documented that inspectors have wrongly cancelled discounts for many policyholders. Now comes this undercooked $350 million subsidy. Why will what failed in 2008 work in 2012?