Florida’s Citizens Rate Hikes Fall Short of Industry Hopes

After three years of no increases, Florida’s Citizens Property Insurance Corp. is about to hike premiums up to 10 percent for many of its policyholders, although not for as many as some insurance insiders and actuaries think it should.

Rates for a majority of the more than one million policyholders in Florida’s state-backed property insurer are likely to rise up to 10 percent starting in January, but rates for some others will go down by varying degrees. Citizens has yet to figure out how exactly many policies will see higher or lower rates but many of the residential and business policyholders with rates going up are in south Florida communities.

According to John Kuczwanski, public information manager for Citizens, the proposed overall rate plan, if approved, would raise about $140 million next year.

While Citizens is recommending rates for 2010, the final decision will belong to the Office of Insurance Regulation (OIR) and Insurance Commissioner Kevin McCarty, who could make changes.

The decision to grant any rate decreases at all at a time when most observers agree that Citizens needs to shore up its funds to cover potential losses from hurricanes has triggered concern within insurance circles. Critics note that all insureds across the state could be assessed should Citizens be unable to pay all of its claims.

Industry representatives and even Citizens’ own actuaries think that Citizens should raise not just some but all rates or at least refrain from decreasing any rates at this time.

But the Citizens’ board voted 7 to 1 to recommend a rate plan that includes some decreases. In so doing, the board was in part heeding legal advice interpreting new legislation (HB 1495) that instructs Citizens to raise rates no more than 10 percent per policy annually for the next several years until rates are actuarially sound. The new law does not directly address whether rate decreases should be granted. But lawyers for OIR and Citizens concluded that Citizens is obligated to implement any decreases that are actuarially justified.

Citizens’ own actuaries have said that it should raise rates about 40 percent on residences, more than 10 percent on commercial residential properties and as much as 140 percent on wind-only commercial property policies to reach proper funding for its exposure, which is about $405 billion for its 1,040,000 policies.

Industry representatives are disappointed and not everyone agrees with the legal interpretation that Citizens must grant decreases.

Sam Miller, executive vice president, Florida Insurance Council, acknowledged that the decision was not an easy one for the Citizens board but warned that it could have repercussions for all property owners.

“The Citizens board had a tough decision to make. If folks are paying too much in Citizens, that’s not right, but almost everyone has been paying too little and that is not right either,” said Miller.

According to Miller, the insurer’s actuarial committee, which recommended no rate rollbacks, “felt Citizens should collect as much premium as possible, under the 10 percent cap on increases, to guarantee that Citizens can pay its claims on time and reduce statewide assessments.” But since the board has done otherwise, Miller predicted there will be “dramatic statewide assessments after a major hurricane.”

Some independent insurance agents believe that regardless of what OIR and Citizens’ lawyers say, Citizens could have and should have nixed any rate decreases.

“This is all political interpretation,” Jeff Grady, president, Florida Association of Insurance Agents, told Insurance Journal.

Grady rejects suggestions that implementing decreases where indicated is the fair thing to do. “We believe that it is not only not fair but that it is not contemplated by a statute clearly designed to reduce the burden of assessments on 84 percent of those residences not insured by Citizens,” he noted in a letter to Citizens.

Rate decreases means that Citizens will underprice the private market, thereby expanding its exposure, Grady warned the board.

FAIA’s advice went unheeded.

Citizens’ Kuczwanski defended the board decision. “Given that Citizens rates have been frozen for three years, any rate adjustment that brings us to being closer to actuarially sound will ultimately bring Citizens into a better financial position,” he said.

Surplus Insurers

Meanwhile the debate continued over what will happen if and when State Farm leaves.

Insurance Commissioner Kevin McCarty said the 54 property insurers backed by nearly $5 billion in capital that have been admitted to the state since 2006 can’t be expected to absorb all of the policies left behind when State Farm exits.

McCarty was answering Rep. William Proctor, R.-St. Augustine, who was upset after Gov. Charlie Crist vetoed his pricing deregulation legislation (HB 1171). Proctor says his bill could have kept State Farm from leaving the state and possibly improved the climate for other national insurers.

Crist vetoed the bill, claiming it would mean higher rates for already-struggling homeowners and be unfair to the smaller, domestic insurers whose rates would remain regulated.

Proctor questioned McCarty’s claim that there are 40 new companies with as much as $4 billion in capitalization that are capable of writing new policies. Proctor also wanted to know how many are surplus lines carriers.

According to McCarty, the list of 54 standard and surplus lines companies includes 14 new insurers started in 2006 and an additional 40 since 2007. He said they have written about 650,000 personal and commercial policies since December 2008. There have also been 1,158 new surplus lines policies during the same period.

“While these 650,000-plus policyholders are a significant portion of the market – and impressive given the severity of the 2004-2005 storm season — our state does not rely heavily on this segment of the market,” McCarty wrote to Proctor. He said the state has a total of about 200 insurers writing residential policies.

Proctor shot back with his own letter claiming that “more than 90 percent of the $4 billion-plus in new private claims-paying capital” is attributable to surplus lines carriers and most do not provide insurance to “average Florida homeowners.” He questioned if this information was available when Crist vetoed his bill.

Topics Florida Carriers Legislation Excess Surplus Pricing Trends Property