THE NEWS SERVICE OF FLORIDA: Lawmakers ask if Citizens rates went up enough

THE NEWS SERVICE OF FLORIDA published this article on December 17, 2009

By DAVID ROYSE

THE CAPITAL, TALLAHASSEE, Dec. 17, 2009……When lawmakers decided earlier this year that rates for coverage by Citizens Property Insurance needed to go up to make sure the company had enough to pay claims, they tried to cushion the blow by putting in the final bill a stipulation that rates couldn’t go up any more than 10 percent a year.

Turns out, they didn’t have to worry – regulators later approved a rate increase of about 5.2 percent on average for homeowners in the state-backed company’s high risk areas.

Some lawmakers are now angry that the approved rate increase was far below the upper limit of 10 percent, and say they’ll likely push harder in the coming year to get the insurer’s rates higher to avoid it being unable to pay claims in the event in the big storm.

Several House members believed the 10 percent cap on rate increases was simply an assurance that they wouldn’t go higher than that, not a license for the Office of Insurance Regulation to approve a smaller increase.

“I can assure you that I am looking for the proper way to spell that out more clearly,” said Rep. Alan Hays, R-Umatilla. “I am not at all pleased.”

Many legislators – though not all – agree that Citizens has been charging too little for many of its coastal customers for a long time, a result of an effort to keep rates low in response to a chorus of complaints about high premiums that followed the busy hurricane seasons of 2004 and 2005.

The problem is, if Citizens can’t pay its claims the next time there’s a big storm, everyone in the state could be affected.

“The Office of Insurance Regulation is perpetuating an extreme risk to every property owner in Florida,” said Hays. “When Citizens can’t pay claims, everybody has to chip in with assessments….As far as I’m concerned, OIR did a gross disservice to the people of this state.”

The sponsor of the legislation that allowed for Citizens to raise rates, ending a rate freeze that had been in effect since 2007, also was disappointed by the roughly 5 percent increase for Citizens’ highest risk customers.

“That was meant to be 10 percent,” said Rep. Bryan Nelson, R-Apopka. “Ten percent used to mean 10 percent. I guess they interpreted it differently.”

Office of Insurance Regulation officials aren’t apologizing. The agency says the law was meant to get Citizens back to actuarially sound rates – and in some cases the company’s rates were actually too high. In some inland areas, in particular, the rates charged were too high and are going down Jan. 1. That lowers the average.

The measure tasked the agency with beginning a return to rates based on an actuarial model and the agency followed the law, said OIR spokesman Tom Zutell.

Not everyone in the Legislature agrees that the law was intended to boost rates by a set 10 percent. Sen. Mike Fasano, R-New Port Richey, wanted to keep rates frozen and have no increase.

“It is not for the Legislature to decide what rates should be,” Fasano said Thursday. “If we start getting into the rate-making business, it’s going to be truly political and allow the lobbyists for the insurance industry to affect those rates. The legislation was clear – a cap of 10 percent. Somewhere between zero and 10 percent.”

Hays and many other proponents of higher Citizens rates say Gov. Charlie Crist’s administration has already made insurance rates a political issue. Crist has made it clear that when it comes to the insurance industry and the customers, he’ll side with the consumer, and running for the U.S. Senate, he’s certainly not going to change that stance. That political calculation is behind the rate decisions made by OIR and Florida Insurance Commissioner Kevin McCarty, Hays alleges.

“Kevin McCarty is Gov. Crist’s political pawn,” Hays said in an interview with the News Service.

Rep. Evan Jenne, D-Dania Beach, said he doesn’t disagree that Citizens rates need to go higher in case there’s a monster storm. But he said with Floridians facing 11 percent unemployment and massive foreclosures in some places, “it’s just not the right time.”

“We should be trying to help homeowners, not jacking up prices,” Jenne said Thursday. “We have people that are struggling to keep their homes.”

Fasano also said that someone needs to look out for consumers and that if Hays files a bill to try to raise rates higher, “you will see a senator named Mike Fasano who will be adamantly opposed to that.”

Backers of the rate increases, including industry officials, say consumers have been getting a break – the rates have been frozen for more than two years. But now, the state runs the risk of seeing Citizens go belly up if there’s a huge storm.

“I would much rather explain to someone why their premium has to go up than have to explain to someone why their house can’t be repaired becase there’s no money,” said Hays.

The rate increases take effect Jan. 1.