Posted on 22 Jan 2013 by Neilson
Florida Insurance Commissioner Kevin McCarty is asking state lawmakers to consider a plan to help depopulate Citizens Property Insurance Corp. that includes addressing the company's various markets separately and creating a new residential rating plan expected to raise rates for policyholders.
Citizens has become a leading homeowners insurer in coastal and sinkhole areas, charging low rates that have had a chilling effect on private market competition in those areas, McCarty said. He said Citizens, through no fault of its own, is not functioning as a true residual market and instead is inadvertently interfering with the private sector market. It cannot be an alternative market, providing alternative, affordable insurance, and at the same time be a market of last resort, he said.
Despite some depopulation during 2012, Citizens continues to write 8,000 policies each month, McCarty said. Citizens must be restructured so its markets become true residual markets, he said. This could be done, he said, by separating the high-cost coastal market account from wind and others, creating a rating plan that would be based on the highest rate among the top 20 private writers, which could increase rates by 25%. He also urged the creation of a clearinghouse that would act as an exchange for all types of property insurance.
And he said lawmakers could consider prohibiting Citizens from writing policies for any new construction in the states Coastal Building Zone that did not meet an appropriate building standard. McCarty said meaningful risk mitigation is key for any long-term risk management.
McCarty said the plan he offered would carry some hardship for policyholders. Let's make no mistake. What were talking about here is higher prices for the most part, he said. And these kinds of reforms are going to require higher prices for many people Higher prices on the front end as opposed to hidden taxes on the back end is something were taking into consideration as we were putting forth these proposals.
Citizens President Barry Gilway addressed the impact of likely depopulation under McCarty's plan. Citizens currently has 860,000 personal line policies, about 8,000 commercial lines and 446,000 coastal account policies. He said of the 1.3 million policies, the private market could absorb about 640,000, leaving Citizens with coastal properties, older homes that are not insurable, older mobile homes and homes that are located in sinkhole areas.
Sam Miller, executive vice president of the Florida Insurance Council, said much of McCarty's plan is likely to be part of expected legislation to be offered by the Senate committee. Miller agreed with McCarty's general approach, but admitted that it would be politically difficult to get it passed.
Other state lawmakers are already considering legislation that addresses whether and how Citizens annual rate hikes should remain at the current 10% cap. Sen. Anitere Flores filed a bill, SB 96, which would mandate that Citizens keep annual rate increases for new business at 10%, legislation that was filed in response to consideration by Citizens of a plan to file uncapped rates for new business. A companion bill, HB 107, is in the House of Representatives.
Rep. Bryan Nelson, chairman of the House insurance and banking subcommittee, told Best's News Service several bills would be offered on the House side. He has proposed that the cap on Citizens annual rate increases be increased by 3%. He said this would allow Citizens to purchase reinsurance, a move he said would reduce the assessments placed on policyholders after a 1-in-100-year storm from 45% to 15%. Nelson said legislation likely would also address the massive numbers of claims in Miami-Dade County, which absorbs more than three times the state average premiums in all sectors except wind, a level he attributes to fraud.
Gilway said the insurer needs to offer a good, solid, basic product. However, he said it should not be uncompetitive with those offered in the marketplace and should be basically the same product.
The top five writers of homeowners multiperil insurance in Florida in 2011 were Citizens, with a 19.93% market share; State Farm Group, with 10.78%; Universal Insurance Holdings Group, with 8.34%; Tower Hill Group, with 6.42%; and USAA Group, with 4.6%, according to BestLink.