Florida’s Citizens Property Insurance Assessment Rate to Change Under New Law
Mar 12, 2012
The following article was published in The Insurance Journal on March 12, 2012:
Florida’s Citizens Assessment Rate to Change Under New Law
By Michael Adams
Florida lawmakers have approved a bill that reduces the assessment rate of the state-run property insurer to give policyholders more time to retire deficits. The bill would also reduce the financial pressure on the insurer, which would no longer have to pay assessments upfront but rather could pay them over time.
The Florida House of Representatives approved HB 1127, sponsored by Rep. Ben Albritton (R-Bartow), who said the bill merely cushions the impact of assessments while retaining Citizens’ ability to pay claims.
“This bill in no way limits Citizens’ ability to pay their claims on time,” said Albritton on the House floor.
Under current law, in the event Citizens runs a deficit its policyholders must pay an assessment of 15 percent of premium for a maximum of 45 percent. Once that amount is exhausted, the insurer can levy a 6 percent regular assessment on virtually all property and casualty lines policies in the state with the exceptions of medical malpractice and workers’ compensation.
Once those regular assessments are exhausted, emergency assessments of up to 10 percent can be charged to policyholders within 90 days of a deficit and collect over as many years as needed.
What the bill does is eliminate the 6 percent regular assessment except on the coastal account where the regular assessment is lowered from 6 percent to 2 percent.
According to a Senate House of Economic Affairs analysis, the elimination of the 6 percent regular assessment on the private market means that Citizens policyholders would likely see higher assessments while policyholders in the private market would end up just paying the same amount of money, just over a longer time. However, emergency assessments can be charged to policyholders within 90 days of a deficit and collect over as many years as needed.
Private Insurers Big Winners
While the passage of the bill affects all state policyholders, private insurers might have the most to gain in the short run. Since they would no longer have to pay regular assessments — except for the 2 percent assessment in the coastal account — upfront, it would largely eliminate any impact on the insurers’ net worth. As a result, lawmakers are hoping it will reduce the chance that any insurer will go bankrupt.
Citizens’ officials indicated the bill would have no negative impact on its ability to pay claims in a timely manner. However, since the insurer would no longer collect monies upfront in the form of regular assessments, it may invest more monies in pre-event bonding.
One thing is clear — that is Citizens will have substantial financial resources coming into this year’s hurricane season. According to officials, Citizens is expected to have a surplus of $5.7 billion, an amount that could be augmented by another $6.5 billion in reimbursements from the Florida Hurricane Catastrophe Fund. The insurer also has $575 billion in pre-event bonds that would cover losses located along the state’s coastline. All told, that gives Citizens roughly $12.8 billion in claims paying capacity before any assessments are levied on policyholders.
Finc this article here: http://www.insurancejournal.com/news/southeast/2012/03/12/239064.htm