Bradenton Herald
By Josh Salman
February 15, 2012
MANATEE — State lawmakers hope to bring some stability to Florida’s insolvent home insurance industry by cutting down the size of its biggest player and public enemy No. 1: Citizens Property Insurance Corp.
A bill that swept through the Florida House last week will downsize the mega state-run insurance carrier by transferring some of its policies to secondary “surplus lines,” which aren’t controlled by the Office of Insurance Regulation like the state’s primary carriers.
Opponents fear the measure will open the floodgates to companies that have no barriers when upping rates on unsuspecting policy holders.
But bill sponsor, Rep. Jim Boyd, R-Bradenton, said he has included safeguards to ensure participating surplus lines are financially sound.
He says the move is essential to restoring competition and protecting customers now covered by Citizens — a financial ticking time bomb.
“The size of Citizens is a huge financial burden hanging over every Floridian’s head,” said Boyd, who also owns an insurance company. “One day we’ll have to pay for it.”
Growing at a pace of more than 1,000 new policies a week, Citizens has become the state’s largest property insurance provider with nearly 1.5 million policy holders.
State laws carry a provision that guarantees every Floridian the right to insurance, and as other recession-battered companies pull out of the Sunshine State all together, Citizens has become the default carrier.
The problem is the company will have to turn to the bond market to pay off its claims should a catastrophic storm rip though Florida — leaving homeowners on the hook, experts predict.
That’s after a 45 percent assessment all Citizens policy holders are subject to pay when they file a claim.
The same risk forced nearly a dozen property insurers to seek bankruptcy over the past four years, while others have shrunk their client base or left Florida, state records show. All of this has come without one major storm.
Most insurance agencies throughout the Manatee-Sarasota area support the bill. They’re begging for any options to offer their customers other than Citizens.
“Citizens has grown out of control,” said Andy Gregory, president of Des Champs, Gregory and Hayes Insurers in Bradenton. “We have to start somewhere. If surplus lines have the money and they’re capable, we might as well let them play too.”
Under the bill, which was approved through a 66-48 House vote, some Citizens policy holders will be automatically passed onto surplus lines unless they opt out within 30 days.
The new coverage must be similar to what’s currently provided by Citizens, and consumers unhappy with their new carrier can return at any time.
Surplus lines looking to pick up new policy holders also must carry at least $50 million in surplus capitol, a strong industry rating and enough resources to survive two hurricanes, the measure states.
Opponents argue that’s not enough.
They fear House Bill 245 ultimately will result in higher premiums across the board from a proliferation of unregulated carriers that can raise rates by any amount without control.
And if surplus lines become insolvent, the state currently offers no protection to policy holders who have filed a claim, said Sean Shaw, founder of Policyholders of Florida, an industry watch association.
“This is a bad bill,” he said. “A lot of people will get this notice in the mail, and because of all the negative attention about Citizens, they’ll think it’s a good thing. Then, when it comes time for a new policy, the rates will go through the roof. These are very dangerous deals. I don’t think people know what they’ll be signing.”
Most industry experts, however, believe the surplus lines actually are in better financial shape than most primary carriers.
They also predict competition will keep rates low. If a surplus line insurer raised its rates three-fold after just one policy, consumers will return to Citizens, whose rates are controlled by the state.
A Senate companion measure required for the House bill to become law has one more committee to clear before it hits the floor for a vote.
“The size of Citizens has always been a good measure of how healthy the market is, and when you see it growing like crazy, it’s not a good sign,” said Don Brown, former chairman of the Florida House Insurance Committee, who now travels the state to discuss the industry. “This gives consumers one more option.”
Josh Salman, Herald business writer, can be reached at 941-745-7095.
http://www.bradenton.com/2012/02/15/3874565/bill-aims-to-shrink-citizens.html
