Citizens' board of directors voted Friday to hire investment bank Goldman Sachs
and a yet-to-be-chosen second company to review the loan proposal and recommend
by December whether it is a good idea.
Top elected officials and consumer advocates have urged Citizens to move slowly
on the loan program, which was first pitched by a private insurer in April but
received little public attention until last month.
If history is a guide, state leaders have good reason to want a deeper analysis
before so much money is committed.
Florida has been offering incentives for private insurers to expand since
shortly after Hurricane Andrew rocked the state's property insurance industry 20
years ago. But the results have been mixed and customers continue to flock to
the government insurer.
Citizens — now the largest home insurance company in the state with nearly 1.5
million policies — once paid private insurers generous “take out bonuses” of up
to 25 percent of a policy's annual premium. But some companies simply pocketed
the bonus money and dumped many policies back on the state insurer as soon as
Georgia State University Professor Robert Klein analyzed private insurers that
were formed to take policies out of Citizens' predecessor in the 1990s and found
that some quickly went out of business while others seemed to be gaming the
“There were some aspects that I think invited abuse,” Klein said.
Citizens paid $206 million in bonuses to private insurers that took over
policies between 1996 and late 2005. Robin Westcott, the state's insurance
consumer advocate, said the bonuses “as a long-term strategy weren't very
effective” because the policies often returned to Citizens.
A $250 million loan program approved by the Legislature in 2006 that used money
from the state's general fund to help private insurers expand also fell short,
Westcott said, with companies writing far fewer than the 1.7 million policies
“I think that the incentive programs have had marginal success,” Westcott said.
Citizens' latest incentive program could also be abused without more refinement,
Westcott added, because there is room for private insurers to take Citizens'
policies for a shorter period than what is required, or to replace policies that
are canceled for valid reasons with less risky policies.
“ ‘The devil is in the details' is a very true statement in this case,” she
said. “You must plan very carefully how you're going to monitor this.”
Westcott applauded Citizens' board for voting to bring in independent reviewers.
The board approved spending up to $200,000 for a review by Goldman Sachs and up
to $200,000 more for the second review.
Citizens President Barry Gilway said that the reviews will “ensure that this
program is a prudent investment and in the best interest of Citizens, its
policyholders and all Florida taxpayers.”
But some lawmakers say no amount of independent review will suffice. New Port
Richey Republican Sen. Mike Fasano, an outspoken critic of Citizens and the loan
proposal, said only the Legislature and the governor can approve the program. He
expects a legal challenge if Citizens goes forward with the plan without
“This is unprecedented and, in my opinion, illegal,” he said.
Fasano said the loans are a questionable use of money that should be available
to pay Citizens' claims after a hurricane.
Citizens officials argue the proposal is a creative way to limit the company's
liability and the number of potential claims.
Gov. Rick Scott and top lawmakers have pushed hard in recent years to shrink
Citizens and move more policies into the private insurance market. The state-run
company has increased rates and decreased coverage in an effort to drive
“We have to be willing to make the hard and sometimes unpopular choices,” Gilway