News Column

Rates Uncapped for New Citizens Customers

April 26, 2013

The Florida Senate passed a bill Thursday to raise rates up to 85 percent for new Citizens insurance customers in Palm Beach County and even more in other parts of the state, which opponents warned could drive up costs sharply for those trying to buy and sell properties covered by the state-run insurer.

The 24-15 vote hands the matter to the House, which has no exact counterpart but could choose to amend existing bills before the scheduled end of the session May 3. It would eventually require the signature of Gov. Rick Scott, who says he wants to keep the cost of living low for families.

The bill represents an "all gain and no pain" solution to shrink Citizens, insisted Senate insurance committee chairman David Simmons, R-Altamonte Springs.

"No, it does not uncap rates," Simmons said on the floor.

That characterization astounded opponents, one of whom said Simmons was dancing like Fred Astaire around the facts of what the bill actually does.

"If you want to raise insurance rates, vote for this bill," said Sen. Jeff Clemens, D-Lake Worth.

Current Citizens customers would remain under a cap that limits rate increases to 10 percent a year, but new customers would have to pay what are deemed "actuarially sound" rates. That means new customer rates 60 percent to 85 percent higher in three terrorities in Palm Beach County, many of them with wind-only policies, according to Citizens records.

Citizens is the state's biggest property insurer with 1.3 million customers, including 130,000 in Palm Beach County.

The bill, reworked in a "strike-all" admendment filed before Thursday's vote, would allow Citizens customers to go back to the state-run carrier under the old rate within 18 months if they lose private coverage "though no fault of their own." Consumer advocates have questioned the vagueness of that last-minute language. It seems clear enough when private insurers drop customers, but less so if a private carrier sharply increases rates after a year, for example -- a big reason Citizens customers have sometimes returned in the past.

In addition, the bill turns the top executive job at Citizens into a political appointee, Clemens said.

It would let the governor and the state's chief executive officer directly appoint the company's executive director, who is currently selected by an eight-member Citizens board appointed in turn by four state leaders.

And in a change from previous versions, the amended bill would also give Scott sole control to appoint a new, ninth member of the Citizens board, who is supposed to be a consumer advocate. Previously the CFO was going to appoint that position.

Scott's Let's Get to Work political committee received more than $718,000 in contributions from insurance interests in the last four months, including $110,000 in March from Heritage Property & Casualty Insurance Co. of St. Petersburg, records show.

If it works as sponsors say, the bill would increase business for private insurers as Citizens rates rise to levels more attractive to the industry, and in the process reduce the risk of assessments to Citizens customers and those of other companies after, for example, a once-a-century storm. That has a 1 percent chance of happening in any given year.

Clemens said the debate was marked by irresponsible fear-mongering and said Citizens already reduced its risk for assessments 43 percent last year. With $6 billion in surplus, and the ability to weather even a Hurricane Andrew-sized storm without emergency assessments to its own or other customers, Citizens gets a higher rating than any other Florida-based insurer from Weiss Ratings of Jupiter.

Other legislators also questioned the need for the bill.

"I can't support this because it's not a fix for the whole problem," said Sen. Maria Sachs, D-Delray Beach. "I know there are a lot of folks who are hurting because of insurance problems."

In a little-remarked provision, SB 1770 allows Citizens to make loans to private insurers who takes its customers. Clemens said it was strange Citizens has money lying around to make loans to other companies even as legislators try to persuade the public it couldn't pay claims after a big storm.

In more widely discussed features, the bill creates a clearinghouse that could prevent some customers from reaching Citizens if private insurers are willing to write policies at comparable prices. And it reduces maximum coverage available to Citizens customers from $1 million to $500,000 over time.

Business groups backing the change applauded the vote.

"By passing SB 1770, the Florida Senate helped out the millions of Floridians who aren't Citizens policyholders but still have to subsidize through assessments those who are," said David Hart, executive vice president of the Florida Chamber.

What SB 1770 Does

--New Citizens insurance customers will pay up to 85 percent more for policies in Palm Beach County

--Current customers remain under rate cap that limits rate increases to 10 percent a year

--Reduces maximum coverage from $1 million to $500,000 over time

--Establishes a clearinghouse that could keep some customers out of Citizens if private insurers offer comparable rates

--Lets governor and CFO directly appoint Citizens executive director

--Governor appoints new, ninth board member, a consumer advocate

--Citizens can make loans to private insurers who take its customers

How They Voted

Yes

Joseph Abruzzo, D-Wellington

Joe Negron, R-Stuart

No

Jeff Clemens, D-Lake Worth

Maria Sachs, D-Delray Beach

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(c)2013 The Palm Beach Post (West Palm Beach, Fla.)

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Source: Copyright Palm Beach Post (FL) 2013