Despite Florida having no major hurricanes in the last
seven years, one-third of the insurance companies that have taken over policies
previously held by Citizens Property Insurance Corp. have gone belly up -- and
cost taxpayers $400 million.
As Citizens intensifies its efforts to turn over policies to smaller insurers -- what industry officials call "takeout" policies -- there is a growing fear that the young, untested companies will not be able to withstand the hurricane season, which began Saturday.
In the last year, more than 300,000 homeowners have been shifted from state-run Citizens into private companies and 60,000 more must decide whether to leave Citizens and sign up with a new insurer within the next month. While the takeout firms have all been vetted by the state's Office of Insurance Regulation, some resemble OIR-approved companies that ultimately failed after assuming Citizens policies: They are young, growing rapidly and reliant on government incentives to sustain their operations.
"The evaluation and approval process has gotten much better," said Florida Insurance Consumer Advocate Robin Westcott, who oversaw several insolvencies as an OIR official. "But there are still vulnerabilities and we will still have companies that will make bad decisions and may take on losses that far exceed their expectations."
Citizens has pushed aggressively to downsize, commissioning a "depopulation committee" to figure out creative ways to encourage private insurers to take over up to half of its 1.3 million policies.
Last month, the Citizens board agreed to pay a 9-month-old St. Petersburg company $52 million to take over 60,000 policies. State leaders blasted the rapidly approved deal with Heritage Property and Casualty Insurance as "tone deaf" and "corporate welfare" for a politically-connected startup.
Citizens President Barry Gilway has defended the deal, calling Heritage "one of the most well-capitalized" firms in Florida. Citizens' Chief Financial Officer acknowledged that Heritage would not be strong enough to take over 60,000 policies this year without the $52 million financial incentive.
Heritage contributed $110,000 to Gov. Rick Scott's reelection campaign in March, as it began negotiating the unique deal with Citizens. Scott's office said the governor did not influence Citizens to act on behalf of his political contributor.
Homeowners began receiving letters from Heritage last week and have 30 days to opt out before they are automatically shifted out of Citizens.
Scott and business leaders have pushed for Citizens to downsize, claiming that the state-run company is carrying too much risk. If Citizens, which currently has a record amount of cash on hand, were to run out of money, consumers could be forced to pay "assessments" to cover a shortfall. After seven years without a hurricane, it would take a storm larger than Hurricane Andrew to trigger assessments.
But several undercapitalized private insurers have become insolvent without a hurricane, costing taxpayers millions of dollars in "assessments" levied by the Florida Insurance Guaranty Association. FIGA charges insurance companies extra fees to cover the cost of insolvencies, and those costs get passed on to homeowners.
OIR officials, who were not available for comment Friday, have defended their
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