Documents show a Scott Push to Shutter Citizens

In a February meeting with the industry lobbyists writing bills for the upcoming legislative session, documents show that Governor Scott’s top staff sought to force the 1.3 million property owners who now have a policy from the state-run carrier back into the private market, “phasing out Citizens completely.”

The industry lobbyists protested that Florida carriers could not absorb all of Citizens’ business, records show.

The gap would force many Florida property owners to turn to the unregulated surplus lines market, where rates are unchecked and policies are not backed by a state guarantee fund.

A lobbyist who attended the meeting advised others by email that Scott knew about the gap, but was not bothered.

“He doesn’t seem to care whether they are insured in the voluntary market or surplus lines,” the lobbyist wrote.

The concept of shutting down Florida’s largest and, at the moment, best-capitalized insurance company outraged lawmakers whose constituents rely on the public company.

“He’s clueless. The governor is clueless as to what is happening throughout the state, and the burden on homeowners and condominium owners and business owners,” said Sen. Mike Fasano, a New Port Richey Republican who opposes most of the insurance legislation offered by the industry this year.

Rep. Jim Boyd, the insurance agent who filed the Citizens insurance bill largely written by the industry, said he did not share the governor’s objective.

“Our goal is simply to return Citizens to the market of last resort,” said Boyd, R-Bradenton. “I think there’s always going to be a need for it, some property that can’t be written by the private market.”

While on the campaign trail last year, Scott said he planned to fix Citizens and hinted at rate increases. He has never publicly discussed ending the state-run carrier, which was created to take hurricane risks, older homes and other property rejected by the private market.

Scott’s office failed to respond to repeated requests by the Herald-Tribune to discuss the governor’s desire to shutter Citizens.

But the idea does have support, including from the business turnaround expert who is now chairman of Citizens.

“I think four years … that’s aggressive. I think the private market would want some backing,” said Jim Malone. “But you’ve got to set some objectives to ensure things get done.”

Scott’s strategy

The documents and emails compiled by the Herald-Tribune from multiple sources offer the first insight into the freshman governor’s thinking about Florida’s insurance situation.

According to notes made by a lobbyist meeting with Scott’s team, the governor sought to shrink Citizens out of existence by excluding more and more homes, starting in 2012 with property valued over $1 million.

A moderated version of that plan, currently affecting only inland property, was written into the proposed bill.

Scott also proposed letting Citizens join private insurers in refusing to write coverage for sinkhole damage.

The records obtained by the Herald-Tribune also shed light on the depth of industry involvement in writing insurance bills currently before the Legislature.

The team writing the Citizens Property Insurance bill included regulators, as well as input from two lawmakers, but consisted mainly of lobbyists.

State Farm, the largest private carrier in the state and second-largest overall, had three people at the table — two lobbyists and a company executive.

Not only did they privately craft language to remove Citizens as a competitor, they also added provisions that would financially benefit their own clients.

Their provisions include eliminating state coverage of screened rooms and allowing unregulated surplus lines companies to sift through Citizens books looking for business.

State Farm lobbyist Mark Delegal promoted reductions in Citizens’ coverage, stripping it down to a bare- bones policy that would not compete with what private insurers offer. He called for Citizens to drop protection for screened enclosures, decks and property off the premises. He also advocated that Citizens’ policyholders be required to buy separate flood insurance policies.

The surplus lines provision was written by a lobbyist paid by Nationwide, which owns a Florida surplus lines carrier called Scottsdale.

Insurers troubled

The bills so far have enjoyed broad support in the House, but are running into some opposition in the Senate. They await final action in the remaining two weeks of the legislative session.

Most of the measures were written from January through March, sometimes in meetings held within Citizens’ Tallahassee offices. Rep. Boyd and Sen. Alan Hays, R-Umatilla, then filed the bills as their own.

Records show Scott’s insurance position was crafted by the governor himself and four top staffers, including legislative affairs director Hayden Dempsey.

Meeting with industry lobbyists, the governor’s office sought to add two major provisions: Remove the requirement for Citizens to sell sinkhole coverage, and shut down the company itself in four years.

According to notes about the meeting, Scott’s staff proposed to begin by excluding homes valued over $1 million and to lower the cap another $250,000 a year until Citizens was empty.

The concept troubled insurers, many of which rely on Citizens to take hurricane risk while they insure coastal homes against fire and other common perils.

“The concern was whether there would be capacity in the market. In the end, all of us agreed, there wasn’t,” said one of the prime architects of the bill, Kyle Ulrich, vice president for legislative affairs at the Florida Association of Insurance Agents.

The insurance lobby sought a compromise, written into the current bill. It caps Citizens policies at $1 million but for inland residents only. Coastal property worth up to $2 million may remain within the carrier.

The proposed inland cap does shrink by $250,000 a year, but stops at $500,000.

It does so little to reduce Citizens’ coastal hurricane exposure — the purported reason for dismantling Citizens — that even executives within Citizens privately questioned the rationale.

One of them, in an email to the secret work group, called the inland caps “disingenuous.”

Ulrich said any reduction of Citizens is good and that there are investors willing to expand Florida’s surplus lines market to absorb that business.

The goal to close Citizens, he said, remains alive.

“We didn’t get here overnight. We won’t get out of this overnight, either,” Ulrich said.

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