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Insurance Consumer Advocate

Sha'Ron James

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Consumer Advocates Blast Citizens' Rate Increase, Question Plan to Move Customers


By: Charles Elmore

Palm Beach Post

Regulators announced approval of a 10.8 percent rate increase for homeowners with Florida’s last-resort insurer Citizens Tuesday, but sparks are flying over a plan that would write $350 million in checks from the ratepayers’ surplus to lure private insurers to take over customers.

One South Florida lawmaker calls the company’s handling of the plan “reckless” and questions whether state-run Citizens is acting under the influence of industry lobbyists. The company’s president defends it as a smart way to shrink the company and reduce the risk of assessments to all insurance customers.

But existing “depopulation” plans are already working without questionable incentives, contends state Rep. Frank Artiles, R-Miami. More than 200,000 policies have been approved for transfer to private insurers, potentially shrinking Citizens, the state’s largest property insurer with 1.4 million customers, by the largest amount in four years.

Many Citizens customers will receive notice this month of takeout programs that give them a choice to stay with the state-run insurer or go with a private carrier. Artiles said he understands another 50,000 to 100,000 customers may receive takeout options in December without incentives. Citizens is the largest property insurer in Palm Beach County with about 140,000 customers.

The incentive program targets up to 300,000 Citizens customers, but with a $350 million sweetener for participating insurers. Artiles questions the need for 20-year loans that are forgiven by 20 percent each year a hurricane hits anywhere in the state.

“In short, you are well on your way to accomplish your goal of 300,000 customers by year’s end, and you do not need to give away $350 million to do so,” Artiles wrote in a Sept. 28 letter to Citizens president Barry Gilway.

The incentive program “needs to include safeguards to ensure that Citizens is not wasting money to remove a policy that someone else will take for free,” Artiles wrote. “It appears that Citizens has been heavily influenced by lobbyists, as there is no rational explanation for such glaring violations of your fiduciary responsibilities to Floridians.”

For its part, a prominent business lobby group says there’s no time to waste in carrying out the incentive plan.

“The financial black cloud that hangs over every Floridian and all of our businesses is dark and getting darker,” said Tom Feeney, president and CEO of Associated Industries of Florida, in a statement that warned of assessment risk.

But skeptics see it as another attempt by private financial interests to get at the $6 billion Citizens surplus — that’s accumulated money paid by ratepayers that acts as a cushion to pay claims.

The company entered the 2012 season with projections it could handle a repeat of the 2004 or 2005 seasons, for instance, without assessments. Some have questioned why Citizens has spent $280 million on expensive private reinsurance, for example, with a less than 3 percent chance it would be used in the two-year policy term.

The Citizens board has approved the $350 million plan in concept but details are expected to come under scrutiny at a company depopulation committee meeting Tuesday and a board meeting Oct.19.

Citizens president Gilway said the plan is well worth the money because it reduces company’s risk exposure. The plan requires insurers to keep Citizens customers for 10 years and not raise rates more than 10 percent for three years.

“This program works to the benefit of not only Citizens policyholders but all Florida taxpayers,” Gilway wrote to Artiles Sept. 19.

State insurance consumer advocate Robin Westcott said the programs can amount to “free reinsurance” for private carriers. On Monday she urged Citizens to consider a range of factors before moving ahead.

Meanwhile, a Citizens spokeswoman said Tuesday the company was pleased regulators had approved a 10.8 percent average annual rate increase and endorsed a “measured approach to achieving sound rates.”

Consumer advocates were not so pleased, contending the annual increase is only one way Citizens is raising bills.

“This isn’t just a rate hike of more than 10 percent, it’s a rate hike of more than 10 percent after Citizens changed the rules — taking away mitigation discounts, reducing coverage, and changing replacement values,” said Sean Shaw, founder of Policyholders of Florida. “Citizens is getting away with charging more for less, and policyholders and our economy are worse off because of it.”