Citizens Property Insurance seeks fewer customers, higher premiums

The following article was published in the Bradenton Herald on May 1, 2012:

Citizens seeks fewer customers, higher premiums

By Toluse Olorunnipa

Citizens Property Insurance has some new ambitious goals: Move as many as 678,000 policyholders out of state-run insurance and once again become the “insurer of last resort.”

Its strategy: Enact a flurry of policy changes that will undoubtedly raise premiums and reduce coverage for thousands.

Citizens, which unveiled the aggressive “depopulation” plan this month in a revised budget proposal, says it is doing so to prevent statewide financial havoc in the wake of a major hurricane.

“Citizens has the ability to levy assessments (hurricane taxes) on almost all Florida policyholders in the event of a deficit after a storm,” spokeswoman Christine Ashburn said in an email. “The long term goal will continue to be returning policies to the private market, which is ultimately how we can reduce the reliance on assessments.”

But some homeowners have already been impacted by the first wave of Citizens’ campaign to drastically reduce its size and shore up its finances.

Patricia Temple, of Coral Gables, is bracing for a $2,150 premium increase this year, after Citizens sent an inspector to her home and decided her payments were too low.

“I have to do what I have to do because I (can) not be without insurance,” said Temple, who is 79 and retired. “But I don’t understand how they can do this if the Legislature put in a 10-percent cap on rate increases.”

Temple became a Citizens client after Liberty Mutual, her insurer of 50 years, dropped her. Though she says she has not made a property insurance claim in five decades, Citizens raised her rates by 50 percent.

Stories like Temple’s are echoed by thousands of policyholders who say they’ve seen costs suddenly spike despite never making a claim or experiencing hurricane damage. Under a sweeping re-inspection program, Citizens has sent inspectors to 158,000 buildings in the last two years. As inspectors check roofs and windows, more often than not, they find something that translates into higher premiums, with an average increase of nearly $900.

Another 209,000 inspections are scheduled for this year, and Citizens recently proposed a new $50,000 contract for a new study of wind mitigation credits. The study is likely to lead to premium increases, and Citizens board member John Rollins indicated the return on investment for the study would be measured in millions of dollars.

Sean Shaw, founder of Policyholders of Florida, said that money will ultimately come out of the pocket of hard-working homeowners, who are paying more for less coverage.

“People are at such a disadvantage when Citizens does this,” he said. “It’s like they’re treating people like data points.”

Despite recent moves to reduce wind mitigation credits and raise rates on sinkhole coverage, Citizens has not experienced any significant reduction in size (the insurer swelled from 800,000 policies in 2007 to more than 1.4 million today).

Citizens’ depopulation push will soon go into overdrive, with several hard-charging coverage changes set to kick in over the next 18 months. Ideally, Citizens would like to shrink by 45 percent to 794,308 policies in the very near future.

With private insurers still wary about the Florida market, it’s not clear where 678,000 current policyholders will go for coverage when contracts end with Citizens.

Citizens’ theory is that its artificially low rates discourage private insurers by making the market uncompetitive. It’s banking on more private insurers picking up the slack as it depopulates.

Here are a few of the changes that begin Tuesday for Citizens policyholders:

Homeowners who need to join Citizens will have to submit written proof that there is no private insurer able to provide affordable coverage for their home.

Builders’ risk insurance for new homes will no longer be offered by Citizens.

Coverage for carports, screened enclosures and fences will end for renewal policies.

The personal liability coverage limit will decline from $300,000 to $100,000.

The push to depopulate is set to intensify in the months ahead, and those with Citizens coverage can expect to be impacted by at least one of several policy changes being proposed. Among them:

Uncapping rates for new policies, causing new policyholders to pay as much as 50 percent more than existing customers for similar coverage.

Requiring new electrical and plumbing inspections for older homes.

Requiring new inspections and likely higher premiums in sinkhole-prone counties.

Increasing deductibles for “all other perils” coverage.

Most of the changes are being enacted without the Legislature, which this year declined to pass major property insurance reform.

With hurricane season set to begin in a month, Citizens says it must tamp down its level of risk in order to avoid financial calamity for all consumers.

While the company has been able to build up a surplus of more than $6 billion during a 6-year streak without a major storm, financial models show that a large hurricane this year could wipe out those funds and other resources. That would lead to assessments for Citizens’ customers and potentially for all insurance policyholders in the state.

That’s why the Citizens board of directors, with the support of Gov. Rick Scott, is trying to attract private insurers back into the market by shrinking Citizens as quickly as possible.

“It is important that Citizens work towards having adequate rates to reduce the likelihood of assessments on all Florida policyholders,” said Ashburn.

Some say those private insurers are never coming back, particularly in the state’s high-risk areas where it doesn’t make financial sense to underwrite homes.

“We’d all love to see the depopulation of Citizens, but guess what? The private companies are not coming back to this area,” Sen. Mike Fasano, R-New Port Richey, told Citizens’ executives last week. “Please, please, leave the people alone that are struggling.”