Lawmakers want to take $250M from Citizens’ insurance reserves

Orlando Sentinel--April 9, 2008

Aaron Deslatte
Tallahassee Bureau

TALLAHASSEE

At the same time they are trying to reduce Floridians’ risk in future hurricanes, state lawmakers also want to take $250 million out of reserves held by Citizens Property Insurance to pay private carriers willing to take policies from the state-run insurer.

The move would leave the company — already a political worry because of the surcharges it could levy on the insurance bills of every Floridian if the state is hit by a Katrina-size storm — with less cash to pay claims.

The cash transfer is slated to be taken up by the full House today, in HB 5057. It is being considered at the same time that lawmakers — worried about last year’s move to inject the state deeper into the insurance market — rush to reverse course.

Proposals are sailing through the Legislature to lower the amount of backup coverage, called reinsurance, that the state can offer to private companies.

Lawmakers also want to bar Citizens from selling policies that cover wind damage only — typically the piece of a homeowner’s policy that is the riskiest and often not covered by private insurers.

Transferring money out of Citizens is an idea espoused by House Speaker Marco Rubio to try and reinvigorate the private market.

Lawmakers created an incentive fund in the wake of the 2004 and 2005 storms. The fund gives cash to participating companies in exchange for their agreeing to assume some Citizens policies — most of which are coastal, higher-risk homes — and commit their own money to pay claims.

Citizens has roughly $2 billion in reserves, well below what would be needed to pay claims after a major hurricane. But the $250 million transfer, which is generally supported by the industry, was added to a Senate insurance-reform package Tuesday that the industry opposes.

The transfer money “brings additional claims-paying capacity to the state,” said Gary Guzzo, a Florida Insurance Council lobbyist.

Senate President-designate Jeff Atwater, the North Palm Beach Republican sponsoring the package, SB 2860, said he’d “prefer that there’s another source” for the incentive cash but otherwise went along with the move. The bill was approved by the General Government Appropriations Committee on a 5-1 vote.

Meanwhile, Florida’s Chief Financial Officer Alex Sink said Tuesday she opposes another provision of the bill: extending a freeze on Citizens’ rates for another year.

“To extend that freeze means we’re going to be more and more under water,” Sink said at a meeting with the South Florida Sun-Sentinel editorial board.

The rate freeze, enacted by the Legislature last year, has resulted in some Citizens policyholders paying up to 50 percent less than they should, and that could mean trouble for most Floridians if a major hurricanes strikes, she said.

Since Citizens doesn’t have enough reserves to pay claims from a megastorm, it would have to sell bonds that would be paid off from assessments that would be tacked onto the premiums charged for auto, property and virtually all other insurance. After the 2005 hurricanes, Citizens was set to pass on assessments equal to roughly $200 for every $1,000 in premium. But the Legislature was flush with money then and bought out much of that deficit with $750 million in cash.

Now lawmakers are strapped for dollars. So they are willing to bet against a storm in the short term if it can help the private market absorb more of Citizens’ 1.3 million policies.

Sink said Citizens should increase its rates slowly over several years to minimize the impact on policyholders.

“Citizens writes 30 percent of the policies in this state. The other 70 percent of the people are in effect subsidizing Citizens policyholders,” she said.