Volume 3 Number 6
February 6, 2006

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Request for Citizens' Rate Review



Independent review reveals Citizens is using questionable factors to raise rates

Tom Gallagher, Florida’s chief financial officer, said today that Citizens Property Insurance Corporation should not be allowed to arbitrarily raise rates without justifying them.

 “Citizens should be transparent and accountable for its financial and ethical performance, and that includes the rates that it charges,” Gallagher said.  “Nearly 800,000 Floridians are counting on Citizens for property protection and deserve options.  That is why I am calling for federal and state solutions that will strengthen our property insurance market and expand coverage options for Florida homeowners.”

According to Gallagher, the first flaw in Citizens’ rate filing is what is termed an administrative factor.  Citizens is asking for higher rates using the industry’s expense experience, which is significantly higher than the expenses that Citizens actually incurs.

The second weakness was Citizens’ use of an “assessment factor,” which would allow the insurer to build up cash to reduce the likelihood of a future assessment. However, Citizens does not have the statutory authority to use this factor.

Since October 2005, Gallagher has been advocating stricter ethical standards, and greater financial oversight and accountability at Citizens.  He has also proposed other needed reforms, including using the surplus in sales tax revenue to offset the burden of a Citizens assessment on homeowners, capping Citizens’ coverage of homes at $1 million or less, reallocating a portion of mitigation dollars to retrofit older homes now trapped in Citizens, and requiring the Office of Insurance Regulation to evaluate the success of Citizens’ Market Assistance Program and take-out programs.

Other solutions being advocated by Gallagher to improve the affordability and availability of homeowners’ coverage include:   creating a national catastrophe fund, allowing tax-deferred catastrophe reserves for insurance companies, standardizing Florida’s building codes statewide, and creating federal tax-free Catastrophic Savings Accounts.

The independent review of Citizens’ rate request is one of eight reviews of insurance companies’ rate filings conducted by Gallagher’s insurance consumer advocate in the last eight months.