Legislature may tweak Citizens assessments – in policyholders’ favor

Lawmakers promised to revamp Citizens Property Insurance Corp., and it looks as if they could make good on that promise this year. Citizens, Florida’s insurer of last resort, is currently allowed to recover a deficit by assessing policyholders — Florida residents — up to 15 percent of premium for each fund that falls behind. If the personal lines account, the commercial lines account and the coastal account all had a deficit, a Floridian could see an assessment of 45 percent of his or her premium.

If only it were as easy as that. There is always the chance that the 15 percent assessment will not cover the deficit. In that case, Citizens can assess as much as 6 percent on residents with private — that is, non-Citizens — insurance personal lines policies. And, if that doesn’t meet the need, the company can levy an additional 10 percent.

It isn’t exactly the policyholders that pay off the 6 percent levy. The private insurance companies pay Citizens the assessment in a lump sum, up front. Those companies then collect the funds from their policyholders. (Emergency assessments are a little different.)

The objective is to retire the deficit at Citizens as quickly as possible, so the insurer has enough cash to pay its claims. At the same time, the current system allows policyholders to pay the assessment over time. The private insurer, though, must pay immediately without the prospect of being speedily reimbursed by its policyholders.

For one member of the state House of Representatives, the system puts private insurers at risk. And Florida cannot withstand any more insurance company bankruptcies.

We’ll discuss his proposal in the next post.

Source: Insurance Journal, “Florida May Change Citizens’ Policyholder Assessments,” Michael Adams, Feb. 28, 2012

Share