Citizens Insurance critics take new approach this year
Published: Sunday, March 3, 2013 at 6:01 a.m.
Last Modified: Saturday, March 2, 2013 at 10:44 p.m.
Worried about the cost of Citizens Property Insurance coverage? Blame your insurance agent — not the state.
That's the message insurance industry insiders are spreading as they try a new tactic this year in the ongoing push to shrink Florida's state-run insurer, long criticized as low-cost "subsidized" coverage.
In a surprising turnabout, advocates of downsizing Citizens say the company — which has a ripple effect on insurance rates for all property owners — is not a great deal for many customers after all. Shop around a little, Citizens' critics say, and better prices often can be had in the private market.
The statements are meant to reassure lawmakers and the public that Citizens can shrink without raising rates as the Florida Legislature, for the third consecutive session, considers property insurance changes with potentially far-reaching consequences.
But legislators also raise questions about the rhetoric that has dominated insurance debates in recent years, disputing dire warnings that Citizens' low prices strangle the private market and leave Floridians open to huge liabilities if the insurer cannot pay claims after a major hurricane.
The new pitch amounts to something like this: Floridians can have their cake and eat it, too, when it comes to property insurance — both lower rates and a more vibrant private insurance market.
All that's needed is a "clearinghouse" system that would allow consumers to obtain a wider range of price quotes from private insurers. Many agents simply don't give customers enough options, some experts say.
"It's a misconception people have that Citizens is the cheapest price," said Locke Burt, a former Republican state senator and owner of one of the state's largest property insurance companies. "That's not necessarily true, and we proved it."
The jarring about-face comes as the Legislature takes another run at overhauling the state's beleaguered insurance market, one that has taken increasingly more money out of consumers' pockets, threatens the state's fledgling economic recovery and could undermine a building industry still trying to get back on its feet.
Lawmakers this year are once again focusing on Citizens, the state's largest property insurer and a target for private insurance companies worried that the government-run carrier is limiting their expansion.
Recent legislative efforts to drive people out of the state-run company have met with political resistance because they focused on increasing rates to make the insurer less attractive. That strategy is hugely unpopular with Citizens' customers and also has roiled the private insurance market because boosting Citizens' rates gives private insurers more latitude to raise their premiums.
Property insurance costs have spiraled ever higher in Florida, even as the state has gone an unprecedented seven consecutive hurricane seasons without a storm making landfall here.
Data presented by Florida's Chief Financial Officer Jeff Atwater at a recent insurance conference indicated home insurance costs have spiked by 67 percent since 2004 for the average Florida household.
Property insurance now eats up 4.6 percent of average household income in the state — compared with 2.6 percent in 2004 — and outweighs property taxes as a financial concern for state residents.
Complaints about rate increases are leading insurance lobbyists to change tactics.
Instead of arguing that Citizens' rates are too low — as many Florida insurance executives have in the past — industry insiders now argue the company is often over-priced.
Not so subsidized
Lawmakers working on a package of property insurance reforms have frequently cited figures provided by Burt, who found that nearly 40 percent of the 558,078 Citizens customers with the most common type of homeowner's policy can receive cheaper insurance in the private market.
Burt's analysis was based on computer-generated price quotes from private insurers for each Citizens policy.
The analysis showed that at least 217,000 policies — or 16 percent of Citizens' total customers — are not being subsidized at all. In fact, they may be paying too much.
Another 106,000 Citizens customers are paying within 15 percent of what a private company would charge for the same policy.
Burt only analyzed half of Citizens' policies, those that are most attractive to private insurers.
Citizens also insures mobile homes and provides "wind-only" hurricane policies along the coast, types of coverage that private insurance executives say is still significantly underpriced. The market for these policies is much weaker. Citizens often is the only provider, and has been for years.
Still, the acknowledgment that most of Citizens' standard policies are priced appropriately is unusual in Florida's property insurance debate. It raises questions about statements used in the past to justify changes.
Gov. Rick Scott and many state leaders argue that Citizens must be dismantled because the company is not collecting enough money to pay claims after a major storm.
They point to the threat of assessments — or "hurricane taxes" — on insurance policies statewide to cover Citizens' unpaid claims after a disaster.
But if many of Citizens' policies are priced appropriately, the company suddenly seems like less of a financial liability. That is something Rep. Mike Fasano, a New Port Richey Republican and outspoken critic of recent efforts to shrink the state-run insurer, has long maintained.
With more than $6 billion in reserves, Citizens' financial weakness is "overblown" Fasano said.
"It's exaggerated to the point where it's absolutely untruthful," he said.
Stripping the insurer of its best-paying customers would actually make it weaker, Fasano noted, increasing the likelihood of the assessments that state officials say they fear the most.
Burt said he believes Citizens still has major financial issues. The company writes a lot of mobile home and coastal policies that he characterized as underpriced, and is not prepared for multiple storms.
But Burt acknowledged that a large chunk of the company's business is financially sound.
Fasano believes the quest to shrink Citizens is based more on ideology than any real financial risk to state residents. Many state leaders simply believe the government should not be in the property insurance business.
Still, after years of battling legislative proposals seeking to drive people out of Citizens through rate hikes, Fasano is open to anything that would shrink the company without raising rates.
So far the clearinghouse plan is drawing wide support.
The idea is simple: Create a computer system that would force insurance agents to get price quotes from every private company doing business in a particular region before placing a policy in Citizens.
"It sounds like something we should consider," Fasano said.
That such a system is needed points to problems with how insurance agents operate in Florida regarding Citizens. Agents often do not aggressively shop policies around to see if a private company can offer a better price than Citizens.
Some agents only represent one insurance company, or a handful of companies. If those companies do not offer a price within 15 percent of Citizens, the agent is legally allowed to place a customer in the state-run insurer.
Kyle Ullrich, vice president of public affairs for the Florida Association of Insurance Agents, acknowledged that agents bear some responsibility for Citizens turning into Florida's largest insurance company with more than 1.3 million customers.
"It's not right that if an agent doesn't have alternative markets that they should be able to dump policies into Citizens," Ullrich said.
The agents association is supporting the clearinghouse idea, which has drawn no opposition so far. The same cannot be said for all property insurance reforms up for consideration this year.
Tucked into a package of reforms that includes the clearinghouse idea are a variety of proposals — many of which were rejected in previous legislative sessions but are being recycled anyway — that would raise Citizens' rates or help private companies raise theirs.
The Senate property insurance bill — which is still in flux — would increase Citizens' 10 percent cap on annual rate increases to 13 percent. It calls for new Citizens customers to pay higher rates and denies coverage to second homes and properties worth more than $600,000.
There also are provisions that would allow private companies to raise rates more rapidly and with less public input.
The politics of property insurance are more unsettled this year. In 2012, the legislation died in the Senate, but some of that chamber's loudest pro-consumer voices are gone.
Still, even some longtime proponents of major insurance reforms are cautioning against going too far this year.
Many coastal lawmakers, including those from South Florida, will have a hard time supporting proposals that raise rates, Burt said.
"And I don't think you need to increase rates to shrink Citizens," he said.