Editorial: Citizens takes big step forward, bigger backward

The following article was published in The Citrus County Chronicle on September 17, 2012:

Citizens takes big step forward, bigger step backward

THE ISSUE: Citizens reins in spending, but rains dollars lending.
OUR OPINION: Giving private insurers public money won’t mend markets.

First, the good news: In a heartening display of responsibility, the board of governors at state-backed Citizens Property Insurance Corporation is cutting up the corporate credit cards following a cyclone of condemnation set spinning by newspaper reports detailing wanton spending by the insurer’s brass and intensified by remarks betraying an executive culture disdainful of prudence.

When traveling, the insurer’s leadership will now be subject to the same spending restrictions placed on the heads of other state agencies, and Gov. Rick Scott has also asked Florida Chief Inspector General Melinda M. Miguel to scrutinize Citizens’ travel expenditures for waste or abuse.

If you’re smiling, savor the moment — it won’t last long.

Minutes after enacting the restrictions at its Sept. 7 meeting, the very same board approved what Citizens is calling an “innovative exposure reduction program,” slated to begin in December. Deciphered, that means the state-backed insurer wants to give $350 million of taxpayers’ money to private firms as an incentive to assume and retain approximately 300,000 policies currently held by Citizens.

To be fair, the $350 million would be structured as 20-year loans. This implies Citizens would want the money back should the firms balk come high water.

Having been fair, let’s be plain: It is policyholders — not underwriters — who need a life preserver. Extending a line of credit to private insurers will do little to remedy Florida’s ailing homeowners’ insurance market, especially in light of the circumstances that caused Citizens to become Florida’s largest underwriter: the failure and flight of private insurers from the state following the hurricane seasons of 2004 and 2005. The terms of the loans provide an ostensible measure of protection to Floridians, but it’s a veneer: There’s nothing in the program that would prevent a repeat of the past.

If Citizens’ board and the administration in Tallahassee want to move people back into the private market, a legislative mandate that private insurers doing business in Florida be sufficiently capitalized to pay most or all of their claims obligations in a worst-case scenario would do far more to restore faith in the system than a lottery of loans ever could.

If that means national or transnational insurers can no longer construct single-state subsidiaries designed to shield the parent company from loss in the event of disaster, so be it. It is ultimately the public interest, not private interests, to which government is beholden.

View the original article here:  http://www.chronicleonline.com/content/citizens-takes-big-step-forward-bigger-backward