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 market.
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 purchasers.
--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 business.
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 to replace.
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 storm.
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 "glide path."
"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 it's strong.
--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."