Security First’s Melissa Burt DeVriese says insurance clearinghouse could improve Floridians’ options

The Daytona Beach News-Journal published the following editorial opinion by Security First Insurance General Counsel and Director Melissa Burt DeVriese on April 21, 2013:

New insurance clearinghouse could improve Floridians’ options

By MELISSA BURT DeVRIESE

The winds of property insurance reform have been blowing in the halls of the 2013 Florida legislative session and, with hurricane season less than two months away, the timing couldn’t be better.

Lawmakers are considering measures to stabilize the marketplace by making changes to Citizens Property Insurance Corporation, a state-run insurance provider.

Citizens was formed in 2002 with the purpose of providing property insurance coverage to Florida homeowners who could not find coverage elsewhere. At the time, the organization, commonly referred to as the “insurer of last resort,” was required by statute to charge sound rates that were not competitive with the private market.

Since the company’s inception, statutory amendments have been passed into law that have changed Citizens from being an insurer of last resort to being the largest insurance company in Florida, and one of the largest in the country. The organization now insures nearly 1.5 million homeowners in Florida – more than any other insurance provider in the state.

Unlike the private market, Citizens is not required to keep a surplus to pay policyholder claims. Instead, if Citizens needs money to pay claims, it has the ability to levy assessments on all Florida policyholders (Citizens and non-Citizens policyholders). The more Citizens grows, the more Floridians like you and me are put on the hook financially to help the company pay policyholder claims.

Citizens, at its current size, is a risk to all Floridians – and the Legislature is correct in looking to shrink Citizens. Contrary to prevailing myth, shrinking Citizens does not have to mean higher rates for Florida homeowners. A competitive rate analysis was conducted, comparing all of Citizens’ homeowners and condo policies to the filed rates and forms for 41 private insurance companies. The data revealed that 91 percent of Citizens’ policies received at least one quotation from the private market that was less than what those customers are currently paying for a policy with Citizens. There are some factors that the data couldn’t account for – such as whether a policy was in Citizens because there had been multiple claims – but what this analysis showed is that the vast majority of homeowners with a Citizens’ policy could actually save money by going with a private carrier.

If so many Floridians could save with a policy from the private market, why do customers end up with Citizens? There are two problems. The first is imperfect information available to the agent and customer. Second, some agents have limited access to place business in the private market – either because agents are “captive,” meaning their ability to place business is limited, or because those agents don’t have an appointment with all private carriers.

THE WINDS OF CHANGE

The Legislature is debating a bill (SB 1770) that includes several important provisions that are beneficial to Floridians. Some provisions are contentious, but there is one that creates a win-win-win situation for the state, Citizens policyholders, and licensed insurance agents. It’s labeled the “clearinghouse,” and if this provision is passed into law, it will reduce the state’s vulnerability to post-hurricane financial crisis, empower Citizens’ policyholders, and provide insurance agents with more options that they can pass along to Florida homeowners.

The clearinghouse requires Citizens to establish a mechanism that would do two things. First, agents would be able to compare rates charged by Citizens and private homeowners’ insurance companies. Second, agents would be able to place business with private carriers – including companies for which the agent does not have a contract. The clearinghouse provides agents and policyholders with better information to make a more informed, sound insurance decision and it will reduce the size of Citizens – resulting in fewer assessments imposed on you and me.

The bill is lauded by groups as diverse as Audubon of Florida to the Florida Consumer Action Network, and even the state’s chief financial officer, Jeff Atwater. Many hours have been spent by the bill’s sponsor, Senate Banking and Insurance Committee Chairman David Simmons, gathering input on which problems the bill should address. Though it will certainly undergo further revisions, it’s encouraging to see the Senate’s willingness to address the crisis at hand. Passage of this bill will mean reduced financial exposure for every citizen of Florida and it will give agents and their customers additional options for finding homeowners’ insurance.

DeVriese is general counsel and director of Ormond Beach-based Security First Insurance Co., where she practices corporate law and is actively involved in helping shape legislation that improves Florida’s property insurance marketplace.