On Wednesday, Floridians learned that in January the Legislature will hold a special session on insurance. Last week, Floridians heard what one of the items on that session’s agenda should be.
Bruce Douglas, the unpaid board chairman of Citizens Property Insurance Corp., said in an interview with The St. Petersburg Times that rates for the state-run insurer of last resort are going up too much, too soon. Next week, the Citizens board will meet to approve the latest increase. Set to kick in March 1, it would have the cumulative effect of roughly doubling, in one year, rates for hurricane coverage in high-risk areas of Palm Beach and St. Lucie counties. That jolt would come after an already approved Jan. 1 increase, which followed another nearly doubling of rates before the bad storm seasons of 2004 and 2005.
Because of the insurance bill the Legislature passed this year, state law leaves Mr. Douglas no option but to vote for the increase. At the board meeting, however, he will recommend that the Legislature, in the special session, change the law. He wants at least to spread out the increase, and possibly reduce it by dropping the rule that Citizens, when setting rates, must take into account the cost of reinsurance. Private insurers buy it to cover losses, but Citizens doesn’t buy reinsurance. In an interview with The Post, he called the new increase “unmanageable for many people.”
In fact, the problem with Citizens goes much deeper. Because of its tax-exempt status and to encourage more private companies to write policies, Citizens must charge the highest rates in the state. Because so many private companies have dumped policies, the insurer of last resort now has 1.3 million policies. Almost 400,000 of those are high-risk wind, and roughly 60 percent of those are in South Florida.
Citizens ran a deficit of roughly $2.3 billion after the 2004 and 2005 seasons. A statewide assessment on all homeowner policies helped to cover that deficit, and some who weren’t in the path of hurricanes didn’t like having to pay. So the Legislature, led by lawmakers from central and north Florida, required Citizens not just to account for reinsurance it doesn’t buy, but to have enough money to pay claims from a one-in-70-year-storm – the worst-case scenario. Citizens estimates that its exposure from high-risk wind policies is $395 billion. There is no way to place that burden on policyholders without making the cost in South Florida prohibitively expensive, thus threatening an already hurting real-estate market.
And by pushing Citizens rates so high, the state also allows private companies to raise rates proportionately, as long as those rates are lower. The theory is that more private carriers will start writing policies that Citizens now covers. “We’re asking,” Mr. Douglas said, “”Will you come back to Florida?”” But as industry analysts acknowledge privately, that approach won’t work in high-risk coastal areas. And with almost all of the state at some degree of risk from hurricanes, any long-range insurance reform has to involve the entire state.
Sen. Mike Fasano, a Republican who represents coastal Pasco County, has announced that he will file a bill to repeal the reinsurance rule for Citizens and the one-in-70-year-storm rule. He was one of very few GOP legislators to oppose the insurance legislation. The Democrats are still pushing their idea of a statewide pool to cover the first level of insurance. Some Republicans now are talking about a sales-tax increase that would subsidize a massive catastrophe fund and allow all hurricane rates to come down.
Simply put, the state can’t charge what insurers call “actuarially sound rates” in South Florida to protect the rest of the state. At the special session, the Legislature can start acknowledging that reality.
SOURCE: Palm Beach Post