Florida Citizens' property insurance update

The current freeze on state-run Citizens Property Insurance Corporation’s rates, originally implemented in January of 2007, is set to expire early next year. Given the longstanding freeze and the current economic situation, lawmakers passed “glide path” legislation that will slowly increase Citizens’ premiums, at a pace of 10 percent each year, until premiums reach market rates. Governor Crist signed the new legislation into law earlier this month.

Citizens’ rates are currently an average of 55 percent below market rates for windstorm-only policies, and 40 percent lower for multi-line policies. The process to implement the “glide path” is complex as the current hurricane model shows that some customers in lower risk areas are paying too much, while others are paying far lower than the risk associated with their property.

Last week, a Citizens panel voted against a measure to correct the discrepancy, eliminating the possibility of rate decreases for Citizens policyholders in lower risk areas. The vote was up before the full board on Friday, but was postponed until July 8.

Also last week, as we predicted in the LeMieux Report, Governor Crist vetoed the measure commonly referred as the “consumer choice” insurance bill. The new insurance legislation, crafted in reaction to State Farm’s decision to begin a two year withdraw from Florida, would allow consumers the option to purchase a homeowners insurance policy that is not regulated by the Office of Insurance Regulation. The Governor determined that the “consumer choice” bill did not contain consumer protections, and allowed certain companies to cherry-pick, selling only to profitable policyholders. The Governor felt the legislation would disrupt efforts to build an increasingly competitive insurance market and would negate some of the insurance reforms passed during the 2007 special session, which have yielded rate decreases on average of 15.9 percent statewide and enabled more than 400,000 policyholders to move from Citizens back to the private market.

BOTTOM LINE:
Citizens must remain fully funded in order to cover claims, or the state assesses the vast majority of all other insurance policies (e.g., auto), to make up the difference. Implementation of the “glide-path” is designed to make Citizens more competitive, moving properties off of the state-run insurer and into the marketplace.  The Governor did the right thing to sign this legislation, and veto the attempt to totally deregulate the market.  As we have said before, property insurance is not a choice and the state has a role to play in ensuring rate increases are fair and reasonable.   Property insurers needs a balance of market forces and regulation to best serve the people.

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Posted by admin on Jun 30 2009. Filed under Business, Tallahassee. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry