Numbers Game for Citizens
By: Maria Mallory White
Ranging from who should be covered to how its claims should be paid, lawmakers
face a herculean task in reforming Citizens Property Insurance Corp.
The company is the country's ninth-largest home insurer, but Citizens is
different from the other insurers in the top 10. Its risk is concentrated all in
one state. Backed by Florida taxpayers that makes both financing its risk and
raising cash to cover its claims complex undertakings.
When the 2013 legislative session gets underway next week in Tallahassee, the
Senate Banking and Insurance committee will continue to tackle an ambitious
draft bill first introduced in January. "The intensity of interest in trying to
do the right thing to reach the right result is unparalleled," committee chair
Sen. David Simmons (R-Altamonte Springs) told his colleagues last month.
If passed, the legislation could transform Florida's property insurance market.
And while concepts such as fair market rates and public subsidies are debated,
for Phyllis Monteferante, the bottom line on Citizens is simply about the
numbers: Last year her premium was $2,300, and this year it's up to $3,500.
"It's really getting out of control now," said the Pompano widow.
The sum of the committee's efforts when it meets on Thursday revolves around a
handful of key numbers:
--1,287,552. That's the total number of Citizens policies in
force statewide, and it's too many. Originally created to be the insurer of last
resort, Citizens is now the ninth-largest home insurer in Florida. The
committee's proposal would shrink Citizens by refocusing the state-backed
insurer primarily on homesteaded Floridians-state residents insuring their
primary dwellings-and other homeowners who couldn't buy coverage in the private
Advantage: A smaller Citizens would mean less financial risk
for all Floridians, who must pay in the event the company doesn't have enough
money on hand and back-up funds for claims following a big storm.
"Citizens is too big," said researcher Steve Pociask, president of the American
Consumer Institute Center for Citizen Research. "This means that one company is
overexposed to a loss from a single storm."
Disadvantage: It's not clear whether Florida's housing
market would ultimately be deemed less attractive to second-home and out-of-town
--8,000. That's roughly the number of new policies Citizens
inks each week-in the midst of its efforts to move existing policies off its
rolls into private companies. Lawmakers want to limit the inflow of new
business. They want Citizens to set up a clearinghouse accessible by agents
across the state, empowering them to recommend coverage from private companies
rather than funneling them into Citizens.
Advantage: Insurance companies willing to take on Citizens
policies would compete against one another through the clearinghouse for that
Disadvantage: Homeowners leaving Citizens could see their
rates increase if private companies offer coverage that is priced higher than
Citizens, which would no longer cover them if bids from other firms were
available. "Consumers should shop for their insurance coverage," said Consumer Advocate
Robin Westcott. "Many times, Citizens is the only option, but I believe many
consumers can find better coverage in the private market if they shop."
--$600,000. That's the committee's proposed new cap on the
replacement value of homes eligible for Citizens coverage. Citizens currently
limits coverage to $1 million homes, though existing legislation allows it to
insure dwellings valued up to $2 million.
Advantage: Decreasing the upper limit of homes covered by
Citizens further reigns in its liabilities should a major storm pass through.
That means less risk Floridians would have to assume.
Disadvantage: Homeowners above the $600,000 mark would have
to locate other carriers for property insurance.
--20. The top-20 rates in a given area would be determined,
and Citizens' policies would be priced above the highest in that group. This
provision would apply to all new Citizens non-residential commercial policies
and its coverage for non-homestead and second homes costing more than $300,000
Advantage: Citizens would offer homeowners coverage in areas
where no private carrier was writing policies. Further, this provision would put
an end to Citizens' discounted or what have often been called "inadequate"
rates, which uncut the prices private companies and drive them out of the
market. Premiums based on sound actuarial risk reduce the exposure any financial
shortfall that Floridians would have to help pay Citizens' claims after a major
Disadvantage: The top-20 requirement ends discounted rates,
so in some areas across the state, new Citizens customers would be subject to
rate increases higher than the current cap of 10 percent under the so-called
"The private market is not as vibrant as it can be and as it should be," said
Samuel Miller, executive vice president of the Florida Insurance Council, an
industry trade group. "An area that we need to focus on, and this bill does
that, is expanding the private market, [and] keeping the private market where
--0. That's how many new wind-only policies Citizens would
be allowed to write after July 1, 2013. That's also how many wind-only renewal
policies the company would be permitted to issue after July 1, 2014.
Advantage: Lawmakers are betting private companies would be
willing to cover wind as part of multi-peril policies, which some companies have
argued are more financially attractive.
Disadvantage: Current wind-only Citizens policyholders would
have to find new coverage, although the proposed clearinghouse would be a
presumed resource in locating a new carrier.
"There are 200,000-plus [Citizens policies] that are wind only," said Chairman
Simmons in a phone interview earlier this month, "and the thought is that
Citizens should stop writing wind-only because there are private companies
sufficient to take on those policies."