Agents Say Some Are Gaming System, Overselling Citizens’ Policies

Independent agents in Florida are calling on the state-run property insurer Citizens Property Insurance Corp. to staunch the flow of policies from agents employed by direct writers.

The independent agents, who represent more than one insurance company, say agents who write only for direct writers are using their access to Citizens as an unfair competitive advantage to the detriment of the market.

Citizens currently has more than 1.4 million policyholders, a number that state officials including Gov. Rick Scott have vowed to lower. Lawmakers and officials are looking to encourage private insurers to assume the policies.

Florida Association of Independent Agents President Jeff Grady said it is time officials tackle the issue of agents employed by direct writers who do not have appointments with private insurers and who are sending thousands of policies straight to Citizens.

“These agents are showing clients Citizens policies first when there are other choices in the market,” said Grady. “It is indefensible as a matter of public policy.”

Grady said agents employed by direct writers use a number of strategies to entice clients to purchase Citizens policies. For one, they push the lower price over other factors, he said. The state-backed insurer’s rates are in many cases lower or equal to those in the private market.

Grady said the direct writers’ agents are also offering discounts on auto policies if a client purchases a Citizens home policy.

State Farm, USAA, Castle Key are among the state’s leading direct writers.

The result of pushing Citizens policies over others means policies are ending up in Citizens that could be placed in the private market, Grady said.

Grady acknowledged that some independent agents may be gaming the system also and, if so, they should be addressed as well.

But he said independent agents have more incentives to place policies in the private market, including higher commissions and the fact that for them placing business with Citizens requires more work. He also said the value of an independent agency is helped by writing private policies since the agency owns the private policy, whereas the state owns a Citizens policy.

“If agents have a choice between placing a policy with Citizens or a private carrier, it is a no brainer,” said Grady. “But independent agents are being penalized for having appointments with private carriers. It’s absurd.”

Michal Connolly, a spokesman for direct writer State Farm of Florida, said Grady fails to take into account the right of policyholders to choose their agent and purchase the coverage they desire. “We believe it is in the best interest of our customers who want to work with their State Farm agent that we can offer Citizens coverage,” Connolly said. “It is a win-win for both of them.”

A study conducted of the market share of the top 25 home insurers does show a migration of policies from direct writers to Citizens.

In 2008, direct writers accounted for roughly 1.5 million policies, while Citizens had 1 million. By the third quarter of 2011, however, those numbers reflected decisions of insurers like State Farm and others to shed policies. At that time, direct writers only accounted for 987,000 policies statewide, while Citizens grew to 1.4 million polices.

Insurers using independent agents have remained relatively unchanged with policy counts of 2.1 million policies in 2008 and 2.2 million as of the third quarter of 2011.