The Florida Banking and Insurance Committee is set to hear recommendations from insurance regulators and industry representatives for ways to curtail the role of the Citizens Property Insurance Corp. in the private property/casualty market.
During a hearing set for Jan.16, lawmakers will hear recommendations from Florida Insurance Commissioner Kevin McCarty; former state Rep. Don Brown, a Republican who now lobbies on behalf of Associated Industries of Florida on insurance issues and Citizens President and Chief Executive Officer Barry Gilway.
Citizens currently has approximately 1.3 million policies in force, which all three organizations represented at the hearing agree is far too many for an insurer of last resort. Citizens in 2011 was the state's largest provider of homeowners insurance with $1.6 billion in direct premiums written, according to BestLink, A.M. Best Co.'s online financial system. Citizens has grown its direct premiums written volume every year since 2009. It became the state's largest writer of homeowners insurance in 2009, when it supplanted State Farm for the spot.
Gilway has called on the legislature and the Florida Office of Insurance Regulation to come up with a way for Citizens to file actuarially sound rates. The insurer is required to do that under existing law but has failed in recent years. Gilway has said previously that Citizens' actuarially deficient rates stem from a rate rollback that happened in 2007. He said in 2007, 2008 and 2009, rates were frozen. Then, in 2010, a "glide path" to actuarially sound rates was established, but capped Citizens' rate increases at 10% annually.
"With rates capped at 10% increases each year, [Citizens is] always going to be a competitor in the market," said Sam Miller, executive vice president of the Florida Insurance Council. "We need to repeal the 10% glide path cap."
Miller said the legislature should enact restrictions on the ability of consumers to buy coverage from Citizens when private insurers are willing to provide them with policy options. He said the legislature should also consider ways to keep people from simply joining Citizens and then never leaving the company.
"We're always going to need Citizens to provide coverage along the water, or to older houses and mobile homes," he said. "But they should not be competing with private insurers."
In December, Citizens proposed creating a clearinghouse that would allow new or renewed property insurance policies to be evaluated by private companies. Using its current depopulation program, Citizens removed some 300,000 policies by year's end, a total that would be one-third higher than Citizens' goal. Gilway has said he thinks the company should carry "no more than 750,000 to 800,000 policies".
McCarty has also called for a greater role of private insurers in the property/casualty market. McCarty cut rate requests sought by Citizens in October, arguing the final rates that were approved "indicate a more reasonable approach toward moving a significant portion of Florida's demographic to actuarially supported rates." McCarty signed off on increases homeowners and dwelling fire insurance rates by 8.5% and by 26.7%, respectively.
Brown is expected to push for a reduction in the Florida Hurricane Catastrophe Fund, the state's reinsurance vehicle, which has faced its own problems in recent years. Last year, the legislature failed to pass a bill that would have cut the Cat Fund from $17 billion to $12 billion by 2017.
Miller said getting any Citizens reform legislation through the Florida Legislature would be a "heavy lift" this year. But even if the legislature fails to act, Miller said Florida Citizens board has taken several steps that have benefited the corporation, including purchasing private reinsurance.
"But they could buy more reinsurance, and they should, if they were able to bring in more premiums that were actuarially sound. They need to be cautious about spending their surplus on reinsurance," Miller said.
The top five writers of homeowners insurance in 2011 in Florida were Citizens, with market share of 19.93%; 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.