Citizens makeover: Should lawmakers leave well enough alone?

Once again, the Florida Legislature is debating ways to move Florida residents off Citizens Property Insurance Corp.’s rolls. The state-backed insurer is the largest property insurance carrier in the state, and lawmakers continue to worry that the company’s reserves will not survive a major catastrophe. If that happens, everyone loses, according to Citizens’ critics.

The insurer has so many customers, the explanation goes, because other, private property insurers have pulled out of the state or cannot compete with Citizens’ rates. State law limits the company’s rate hikes, and critics believe the result is non-competitive and unnaturally low premiums. Private insurers will stay away from Florida as long as Citizens’ rates are not market-driven. And, those low rates are keeping consumers from looking elsewhere.

As a recent Palm Beach Post article pointed out, even if Citizens’ policyholders moved to private insurers, the people of Florida still bear some of the risk. If a major, one-hundred year storm settled over Miami, yes, Citizens’ reserve could be drained, and anyone with property insurance from any company and from any part of the state would be assessed to cover the loss. Private insurance companies, though, could just fold up shop — it’s happened before — and the Florida Insurance Guaranty Association would pick up the tab.

FIGA, as it’s known, would cover the losses by imposing assessments on each property insurance company doing business in the state. Those insurers, in turn, would pass on the loss to their policyholders in the state — the same people assessed to cover Citizens’ losses.

This brings to mind a report filed and quickly withdrawn by the Florida Insurance Consumer Advocate’s office last year. We’ll get into that in our next post.

Source: Palm Beach Post, “Shrinking Citizens still leaves ratepayers on the hook,” Charles Elmore, Feb. 10, 2013

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