A battle over state-run Citizens Property Insurance is brewing among Florida legislators. One side is calling for raising rates higher and faster, the other is demanding to hold the line on increases, and policyholders are stuck in the middle.
Legislators could save themselves and Floridians a lot of time and trouble by taking one basic step: Require small, private insurers to meet financial standards that would make them at least as reliable as Citizens.
Unfortunately, that simple step doesn't appear to be under consideration in the upcoming legislative session, which gets under way March 5.
Instead, state Sen. David Simmons, R-Altamonte Springs, chairman of the Senate Insurance and Banking Committee, is leading a push to raise Citizens' rates faster than now allowed by law, and to tighten requirements for homeowners seeking coverage.
Caps or hikes?
Simmons' counterpart in the Florida House, Rep. Bryan Nelson, R-Apopka, said last week that he would consider increasing Citizens' 10 percent cap on annual rate increases to 13 percent.
Meanwhile, two Miami Republicans, Sen. Anitere Flores and Rep. Jose Felix Diaz, have introduced bills that would strengthen the current cap.
Last year, Citizens' administrators considered allowing larger rate increases for new customers while maintaining the 10 percent cap for current policies. But they dropped the idea when some state officials questioned its legality.
Flores' and Diaz's bills would make it clear that the 10 percent cap applies to all customers.
The upshot is that the rate-hikers and the rate-cappers, all Republicans, are headed for a showdown, while Citizens' 1.4 million policyholders watch from the sidelines.
And, though Simmons and Nelson are powerful chairmen, don't count out the other guys. Property insurance rate hikes are politically volatile and last year several Republicans joined with Democrats to defeat insurance reform measures.
Simmons and Nelson will try to persuade their colleagues that bigger and faster rate hikes are needed to force policyholders out of Citizens and into private insurance.
They warn -- as legislative leaders, Gov. Rick Scott and Citizens administrators have before -- that Citizens, the state's largest property insurer, is too big and won't be able to cover its claims in the event that a major hurricane strikes. If it can't, all Florida policyholders -- whether Citizens clients or not -- will be assessed to make up the difference.
But what the rate-hikers neglect to say is that the same assessment would be imposed if a private insurer fails.
In fact, it already is being imposed.
As the Herald-Tribune's Zac Anderson has reported, in 2011 Tampa-based Homewise Insurance became "at least the eighth Florida property insurer to become insolvent since 2004" -- the 11th if you count multiple insurers under one holding company that failed.
As a result of the Homewise failure, all insurance policyholders statewide face a 1 percent rate increase this year -- an average of $20 per homeowner -- to cover the private insurer's $142 million in unpaid claims.
And future bailouts of private insurers appear much more likely than a so-called "hurricane tax" to help Citizens.
The state's Office of the Insurance Consumer Advocate found last year that numerous small, undercapitalized private insurers operating in Florida would be "as much or more of a financial risk" than Citizens in the event of a hurricane.
That risk, unfortunately, is self-inflicted. As the Herald-Tribune's 2011 Pulitzer Prize-winning series showed, Florida's insurance regulators not only permit small, private insurers to carry dangerously low reserves but encourage them to take on more policies than they can safely cover.
Why Citizens exists
Major insurers, which began pulling out of Florida or reducing their exposure after Hurricane Andrew in 1992, show no inclination to expand coverage, even though rates have increased substantially. The lack of available, reliable coverage led the Legislature to create Citizens in the first place.
Yet, state officials and the Legislature continue to try to push policyholders out of the Citizens. They've raised rates, reduced coverage, even offered to lend private insurers $350 million to encourage them to take on new customers.
Those efforts have largely failed. Citizens has announced that it ended last year down only 9 percent from a record high number of policies.
Maybe the policyholders understand something that legislators don't seem to grasp: The weakened public insurer is still stronger than undercapitalized insurers.
It was no surprise that Citizens President Barry Gilway eventually decided to drop the controversial loan program, stating, "I seriously doubt, even if the ... program would proceed, that we would have any real takers that meet the financial requirements that we believe would be necessary."
That failure to "meet the financial requirements" is a clear indication that the state needs to focus not on reducing the number of Citizens policyholders but on raising the standards for private insurers.