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Topical Breezes
Following the Currents that Guide Florida's Future
Is Citizens Insurance Corp. offering fair rates to Florida Homeowners?
Frank Bentayou
Whether it’s sinkholes or hurricanes, Citizens Property Insurance Corp., created under Florida law as a “last resort” homeowners insurer, always seems to have reasons to raise rates. Now, insurance premiums have risen to such an extent as to become a major financial burden, possibly risking the state’s economic growth. Suffering homeowners, legislators and trial lawyers have all weighed into the conflict. There's even a class-action lawsuit brewing against Citizens over its aggressive approach to the evaluation of insured dwellings.
Sean Shaw
TAMPA ATTORNEY, SERVED AS Florida's Insurance Consumer Advocate

     Florida’s insurance market is unique. With an incredibly disproportionate amount of the state’s population and economic might within a 15-minute drive from the most active tropical waters in the world, it’s not hard to see why.
      Quite understandably, Florida’s high level of home-damage exposure has led to trepidation among risk-averse insurance carriers who have been hesitant to write policies in the state ever since Hurricane Andrew slammed into South Florida leaving behind an unprecedented swath of devastation.  Hurricane Andrew’s landfall was a watershed moment in Florida’s history for several reasons.  Not the least of which is that it showed just how vulnerable our state was to a large-scale catastrophe. 
      High exposure and high demand naturally lead to high insurance rates, and in a state ranked near the bottom of the barrel in median income, this can force tough political decisions.
      Aside from the painful memories of enormous human tragedy, Hurricane Andrew’s legacy is most visible in Florida’s beleaguered insurance market -- more specifically, in Citizens Property Insurance Corp., Florida’s state-run insurer of last resort.
       With more than 1.5 million policies extending more than $508 billion in coverage, Citizens has ballooned in size while private carriers have continued to contract. Despite being granted the uncommon tranquility of six storm-free years, private carriers have, for the most part, refused to write new policies.  Instead, they claim that Florida’s volatile political environment leaves them in competition with Citizens whose rates are artificially suppressed by operation of law.  Moreover, these private carriers consistently state that these same political considerations diminish their ability to charge adequate rates themselves.
      While there’s no denying that political expediency has suppressed the state-run insurer’s rates, the cries of poverty coming from private insurers is largely overstated, and the solutions proposed by industry lobbyists and their favorite legislators are enormous overcorrections.
      Yes, Citizen’s rates need to rise, but any increase needs to be a gradual process rooted in independent data, not back room influence.  Currently, Florida law only allows Citizens’ rates to increase by 10 percent a year.  While complete deregulation could destroy Florida’s already struggling property market as well as any chance of an economic recovery, I do believe this artificial cap is too low and dissuades private carriers from competing in the state. We all want a vibrant, competitive insurance marketplace in our state, but there is also a compelling public interest to make certain Florida remains a viable place to live, to work and to raise a family.

Ralph Fisher

We need to re-shape the debate over what Citizens Insurance, Florida’s state-run insurance scheme for homeowners, should charge as an insurance premium to insure a private home. The proper, and more fundamental and existential question for our conservative leadership in the state of Florida is: “Is it a proper government function to sponsor insurance for homeowners?”
     The answer for Canada is, “No;” the answer for Costa Rica and Mexico is, “NO.” Even communist Cuba and North Korea refuse to sponsor homeowner’s insurance schemes for homeowners.  Then why is capitalist and Republican Florida involved in the quagmire of private insurance?
     Having the government offer insurance is one of the most collectivist and anti-capitalist acts a government can commit. Why? Because it takes risk from one set of protected and coddled residents -- those homeowners who chose to buy homes in high-risk parts of the state -- and transfers it through special assessments, taxes and sovereign guarantees to the renters and other taxpayers of this state.
     My latest homeowner’s insurance bill from USAA has surcharges for “Citizens Emergency Assessment,”, “FL. Hurricane Cat Fund Premium Recoupment,” and numerous other taxes, all adding over 20 percent to the cost of my homeowner’s insurance. And this isn’t all: through its insurance madness, the Florida’s government had taken on a more-than $500 billion insurance risk and has only set aside $6 billion to pay claims when the next storm hits. 
     It’s only a matter of time before we go through the same cycle of claims and special assessments on everyone else’s insurance premiums to pay for the special few the state insures.
     I’m mad as hell that I’m paying for other people’s insurance claims, especially when it goes against everything our country and our constitution stand for. Whatever happened to personal responsibility and conservatism in this state? Why are we privatizing reward and socializing risk in home ownership?
     If the legislature wants to do something about their imprudent constituents who chose to buy homes in risky parts of the state, why not make it illegal to require homeowners insurance in a mortgage?  Sure, interest rates might go up by 50 basis points (half a percent), and the banking industry would complain. But does anyone think that lending would cease on homes in Florida? No, lending would go on and the prudent would still be insured, just as before the era of socialist government-run insurance schemes infected the body politic of this great state.
     If our Republican leadership in the house, senate and governor’s mansion claim to be conservative, it’s about time for them to start acting on their rhetoric. We need to close Citizens Insurance Corp. now and let the free market prevail.

Mike Fasano

Homeownership has always been one of the main goals in life for Americans.  Securing that home and insuring it at an affordable rate go hand in hand. Florida is a state with its own unique weather and geological challenges.  There was a time when private insurers ruled the market.  Competition brought affordable premiums and most homeowners had a menu of companies from which to choose.  For those who could not get coverage through conventional means, the Florida Joint Underwriting Association (JUA) was created.  Following the eventual dissolution of the JUA , Citizens Property Insurance Corp. was formed to be the “insurer of last resort” for homeowners who had nowhere else to turn.
     Unfortunately, in the years since its inception, Citizens has become the largest single property insurer in the state.  One of the biggest reasons for this is that the once healthy private insurance market has abandoned the state.  After some unfortunate hurricane seasons -- and lowered profits for insurance companies -- their rush from Florida decimated the industry. 
     Despite Tallahassee’s efforts to “reform” the insurance industry, reputable and regulated private companies continued to drop policyholders and reduce coverage areas, thus pushing more and more homeowners into Citizens. Unregulated surplus lines companies come into the state in an attempt to “depopulate” Citizens, but too often homeowners found themselves with companies that can raise rates at will, leaving those policyholders with little recourse but to return to Citizens if possible. 
     Despite its size, Citizens’ rates were held in check by consumer-friendly legislators who understood how the insurer was hurting the consumer.  Several years ago the legislature wisely put a 10 percent cap on the amount a Citizens premium could rise in any given year.  Citizens has long complained that its rates are not “actuarially sound,” a position echoed by some lawmakers. Unfortunately, insurance-friendly legislators supported a bill in 2011 that opened the door for Citizens to circumvent the cap and find creative ways to increase its income, despite several years of relatively quiet storm seasons.
     Citizens has raised premiums for sinkhole coverage in certain areas of the state to levels that are unaffordable for all but the most wealthy.  Additionally, Citizens has dropped coverage for carports, pool enclosures and other attachments to houses that are not part of the main structure.  Another anti-consumer practice that was in effect until recently was  Citizens’ refusal to reevaluate the replacement cost of homes.  Despite being presented with a professional appraisal commissioned by the homeowner not willing or able to pay the unnaturally high premiums being sought, Citizens would stick to its original, often inflated, replacement cost projections.  The higher the replacement cost, the higher the premium.
     Too often the human element is forgotten in the race for profits.  If Floridians are to remain in their homes, they will need insurance coverage that is affordable and meaningful.  Coverage that excludes significant parts of a piece of property is often not acceptable to mortgage lenders.  It is imperative that lawmakers continue to put pressure on Citizens to remember that the homeowners it covers are individuals not just policy numbers.  Insurance regulators can carry a big stick if they choose to exercise their power.  It will take a concerted and constant effort to keep premiums low and maintain coverage that meets the needs of homeowners.  Without that effort, the mighty dollar will always win in the end.

Mark Beausoleil

The quick answer is that Citizens Property Insurance Corporation (Citizens) does not have control over Florida property insurance rates; the Florida Legislature through the Office of Insurance Regulation sets Florida’s insurance rates. 
      The real question is whether Citizens is offering affordable insurance to Floridians who have no other choice to protect their property from losses like hurricanes, fires, etc.  The answer to that question is a resounding NO.
There are two ways to increase the insurance premiums property owners have to pay; the first is for the state legislature to increase insurance rates, and the second is to increase the value of the property or risk. 
      Citizens has no control over increasing the insurance rate, so it has intentionally artificially inflated the replacement-cost value of its policyholders’ property for the sole purpose of obtaining an increase in premiums.  Citizens has accomplished this by contracting with Xactware Solutions, Inc. which created Xactware 360Value® replacement cost estimator tool.  Citizens, with the use of this tool, dictates the replacement-cost values of its policyholders’ property and, in many cases, these values are greater than 100 percent of the true replacement-cost value.  Citizens takes advantage of its unequal bargaining power with its policyholders by offering them the inflated replacement-cost insurance on a take-it or leave-it basis. 
     What this means to Citizens’ policyholders is that if they choose to leave it and not accept the inflated replacement-cost value, they are left without property insurance altogether because Citizens is the insurer of last resort.  In most cases, policyholders have to take it and, in doing so, find their insurance premiums and windstorm deductibles dramatically increased.  Consequently, in the case of a windstorm loss, the policyholder’s insurance claim is reduced due to the higher windstorm deductible.
     Citizens argues that it doesn’t have an incentive to inflate replacement-cost values because it would have to pay out more money in the event of a total loss.  But the number of policyholders experiencing a total loss caused by a covered peril is negligible in comparison to the 1.5 million policyholders whose property’s replacement-cost values are being artificially inflated by Citizens.  The reason there are low numbers of total-loss payouts is that Citizens is only obligated to pay the inflated replacement-cost value (limits of liability) of the policy if 100 percent of the loss is caused by a covered peril. 
     In hurricane events, in many cases, the argument centers on whether the loss was caused by wind or water.  Of course, in most property insurance policies, including Citizens, flood water is never a covered peril.  If it is determined that flood water caused a portion of the property loss, Citizens would never be obligated to pay the total inflated replacement-cost value that policyholders are paying for. 
     So it begs the question: What incentive does Citizens have to artificially inflate its policyholders’ property replacement-cost values?  First, Citizens receives the additional money from increased premiums.  Second, very few claims are a total loss, so Citizens pays less money to its policyholders due to the dramatic increase in windstorm deductibles.  The clear losers in this scenario are the Citizens policyholders who have no place else to turn for their property insurance.

Christine Turner Ashburn
Spokeswoman, Citizens Insurance Corp.

Our motivation in establishing an accurate replacement cost valuation is to protect our policyholders and make sure they can restore their home after a catastrophic loss. Any assertion to the contrary is simply wrong.

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