Citizens Insurance officials, legislators start talking about changes

On Jan. 12, 2011, officials with Citizens Property Insurance Corp. delivered a presentation to the Florida House Banking and Insurance Subcommittee on the challenges facing the state-run program.

The main problems are well-reported: Citizens, now Florida's largest insurance company with nearly 1.3 million policy holders, may not have enough money on hand to pay all the anticipated claims if a large storm hits. But its ability to raise rates is limited by state statutes. And if Citizens comes up short, it can assess extra fees to everybody's home, car and business policies – even those who aren't Citizens customers.

That has Gov. Rick Scott worried because it could slow his drive for more jobs. In his "Blueprint to Secure Our Economic Future: Insurance and Tort Reform," he said the insurance uncertainty hurts the state's business climate and discourages companies from making new investments here.

Scott pledged during the campaign that he would "work with the Florida Legislature to eventually eliminate the government-run program's reliance on assessments following a major disaster and ensure that Citizens consistently operates on actuarially sound rates."

The House subcommittee meeting gives us a chance to measure the governor's progress on the Scott-O-Meter.

Among the challenges noted in Citizens' report to the lawmakers:

• Citizens' non-catastrophe loss ratio has escalated in the last two years.

• Though Citizens currently has a $4.6 billion surplus, should a 1-in-100-year storm hit it would cost a projected $22.2 billion, wiping out Citizens' coffers and would require Floridians to foot the rest of the bill through assessments.

• Because Citizens is an alternative insurer, it does not have the same ability as private insurance companies to turn away property owners in riskier areas such as coastal zones more prone to hurricane damage.

By raising rates only 10 percent each year (the legal limit), it would take several years before Citizens reaches the rates required to be actuarially sound, Deputy Insurance Commissioner Belinda Miller told the committee, according to the Sun-Sentinel.

Generally, an "actuarially sound" insurance program will set rates at a level where the premium payments and the interest income earned from them will cover the projected claims and other costs of business -- without additional assessments.

Several factors -- from previous weather patterns to building codes in a particular area -- are used to create computer models that formulate a sound rate, said Citizens Chief Financial Officer Sharon Binnun.

Binnun told the panel that in order to catch up to an actuarially sound rate, Citizens would have to hike its premiums dramatically -- 55 percent more for homeowners, 20 percent more for condominium associations, and roughly 118 percent more for businesses.

If rates are not raised, Binnun told subcommittee members, should a 1-in-50-year storm hit (like the Category 5 Hurricane Andrew that ripped through South Florida in 1992), Citizens would not have enough money to compensate claims. It would have to pass the cost on to private insurance customers through increased assessments.

(To see how the assessments could affect you, check out this calculator produced by the Florida Office of the Insurance Consumer Advocate.)

The early discussion between Citizens and the House insurance subcommittee signals to us that Scott's pledge is a work in progress. We rate this In the Works.