NaplesNews.com
by Laura Layden
July 13, 2011
Florida’s “insurer of last resort” may soon go private.
Jim Malone, CEO of the state-run Citizens Property Insurance, floated the idea at a regular board meeting on Wednesday. It would take political will – and if it happened it could take nearly a year to do.
Malone, a Naples entrepreneur, has proposed the idea as a way to reduce the state’s financial risk, which continues to grow as the government-backed insurer adds more policy holders by the week.
“It just continues to worry me to death that here we sit with lower than market rates and with growth that just continues to increase our exposure,” he said in a phone interview after the board meeting.
He said Citizens is growing at “a rate of 4,000 to 5,000 people a week.” Statewide, Citizens has nearly 1.4 million policies.
“No other state has the number of policies or the exposure to loss like Florida. They don’t even come close,” said Lynne McChristian, a spokeswoman for the Insurance Information Institute.
Citizens Property Insurance has half of the total policies of all state-run insurers and it has 70 percent of the risk based on the value of insured real estate, she said.
As of June 30, there were 58,760 Citizens policies in Lee County – up from 50,821 a year ago. There were another 24,316 policies in Collier at the end of last month, up from 21,211 in June 2010.
“What has happened over the years through legislative action or inaction, depending on your point of view, Citizens has become the largest insurer in the state,” Malone said. “We are the third largest underwriter of property insurance in the country, but all of our risk is concentrated in the state of Florida.”
Gov. Rick Scott quickly embraced Malone’s idea. If privatization would help drive down the cost of insurance, he said, “I want to look at it very closely.”
Not everyone was so welcoming of the idea.
Joe Volturno, a 79-year-old retiree who lives in eastern Collier County, said he fears privatization will only increase his premiums as a Citizens policy holder.
“I don’t know why the premiums keep going up every year,” he said.
He lives in a manufactured home in Blue Skys off Radio Road and he was unable to find insurance anywhere else. His yearly premium is now $1,800 a year.
Richard A. Ferreira, a former city councilman in Bonita Springs, also has a Citizens policy for his manufactured home in Spring Creek Village and doesn’t support privatization. “They are doing that because they want open competition, so that prices can be raised far beyond what the middle-class can afford,” he said.
Ferreira was forced into Citizens when he had to replace his manufactured home after it was destroyed by Hurricane Charley in 2004. He was denied insurance by all the major carriers including State Farm.
He’s unsure whether he’ll be able to keep his policy with Citizens if the insurer is privatized.
The idea still needs legal and financial study. The state insurer could possibly become publicly traded, Malone said.
“That way people from different parts of the country could own or invest in it,” he said.
Privatization would enable Citizens to have more competitive rates, Malone said.
“This is by no means an easy or sure solution, but it is one that I think needs to be explored,” he said.
He expected opposition.
“People that have a vested interest in the status quo will naturally oppose anything that threatens their well being,” Malone said. “I think there will be some legislative opposition to it.”
At least one key legislator, Sen. Garrett Richter, R-Naples, is showing his initial support for the idea. He’s the chairman of the Senate Banking and Insurance Committee.
“I have tremendous respect for Jim Malone’s intellect and his business acumen,” he said.
Malone is the founding managing partner of Naples-based Qorval LLC, an investment banking, financial advisory and turn-around firm.
Other efforts to make Citizens truly the insurer of last resort haven’t worked, Richter said. “So I would have an open mind as we proceed with a bonafide discussion about whether to or whether not to privatize Citizens.”
He described the effort as “at the starting line.”
“It is important that we do whatever we can to attract more underwriters in the state of Florida in an effort to responsibly reduce premiums,” Richter said.
Tim Shaw, CEO of Tim Shaw Insurance Group Inc. in Fort Myers and Naples, said privatization is a good idea for several reasons.
He pointed out that all homeowners who are insured by Citizens have the fear of a big assessment if there’s not enough money to cover a bad hurricane season. They can be assessed up to 45 percent of their premium, he said.
“The people in the regular market are not going to be subject to that assessment, unless the losses get real bad,” Shaw said.
When the losses are “real bad,” every insurance policy holder in Florida has to pay for Citizens’ losses, he said.
Every policy holder in Florida is still paying the cost of damages from hurricanes in 2005 as a result of Citizens’ losses.
“We’ve got five more years to pay off the last big storm we had,” said McChristian, with the Insurance Information Institute.
Citizens should not have policies for homeowners who don’t live on the coast. That’s not what it was designed for, Shaw said.
In 2002, the Legislature created Citizens to provide insurance to homeowners in high-risk areas and those who couldn’t find coverage in the private market. It was largely an offshoot of an underwriting association formed by the state in the aftermath of Hurricane Andrew, which devastated South Florida in August 1992.
Shaw admitted it can be tough, if not impossible, for owners of manufactured homes to find insurance from private companies.
Naturally, employees of Citizens won’t like the idea of privatization, Shaw said.
“Jobs could be at risk,” he said.
http://www.naplesnews.com/news/2011/jul/13/growing-problem-citizens-property-insurance-ceo-su/
