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Fla. agents advise consumers of coverage gaps, likelihood of assessments with Citizens

Florida’s insurance agents are advising consumers seeking coverage from Citizens Property Insurance Corp. to proceed cautiously, especially for those making comparisons with the private market.

Coverage in the state insurer of last resort may not always be the wisest choice for every homeowner, according to the Florida Association of Insurance Agents (FAIA).

“It’s certainly an alternative, sometimes the only alternative,” said Jeff Grady president and CEO of the FAIA. “But there are considerations regarding policyholder assessments and coverage.”

Grady warns that not only might the gaps in coverage be significant for some families, policyholder assessments for deficits are both more likely and higher than with standard carriers.

One potential coverage gap: under a Citizens policy, personal property coverage for all personal belongings, which includes all furniture, electronics, clothing, and household goods, is limited to 50 percent of the home’s value. That may be enough, according to Grady, but most standard market companies allow the limit to be increased; Citizens does not.

Additional living expense

Another example is additional living expense coverage, which pays if a policyholder can’t live in a home after it is damaged. Citizens’ maximum is half that of many private carriers. It reimburses only up to 10 percent of the home’s value while many, but not all, private companies provide 20 percent. For example, if the structure is covered for $150,000 and is declared a total loss, Citizens will pay only $15,000 if a policyholder has to live elsewhere while a home is rebuilt. Many private companies would have paid $30,000, according to Grady.

Other potential coverage gaps under Citizens: Liability coverage is limited to $300,000 no matter how much it costs the policyholder in court or how much the final judgment is.

Medical payments are limited to $2,000, which means policyholders must pay out of pocket if a guest is injured in their home and medical costs exceed the coverage limit.

Home businesses

For home-based businesses, no coverage is available for outside business pursuits. Animal liability also isn’t available. So, if a family pet bites or injures someone and the family is sued, policyholders must pay all defense costs and any judgment. Lawsuit coverage for libel or slander also is not covered, Grady added.

FAIA pointed out that less coverage is only one reason for consumers to move slowly with the state-run insurer. In the event that storms drain Citizens’ reserves as they did in 2004 and 2005, Citizens’ policyholders could be surprised.

That’s because lawmakers changed the approach for funding deficits in any one or all of Citizens’ three accounts. Citizens’ policyholders will now pay before private market policyholders, beginning in 2008. They also are divided into two categories: homestead and non-homestead, with non-homestead Citizens’ policyholders paying each time there is a deficit for any or all three of the Citizens’ accounts.

“Our agents are working hard to inform customers about the potential increased risks with Citizens,” said Grady. “When you have government proclaiming that Citizens is the answer, it can sometimes be difficult to get that message across.”

Responding to FAIA’s consumer advisory, Citizens maintained that its basic coverages match what most private insurers sell. It acknowledged, however, that it does not offer some of the optional endorsements or coverages available from private insurers that that go beyond the basic coverages.

ISO form

According to Paul Palumbo, senior vice president of underwriting, Citizens provides industry standard coverages based upon forms published by the Insurance Services Office (ISO) that are also used by private insurers.

All of Citizen’s multi-peril homeowner policies are written on the “special form” which provides the most comprehensive coverage, according to Palumbo.

Given that Citizens uses ISO forms, Palumbo maintained that most of the limitations cited by the FAIA are standard throughout the industry.

Citizens further noted that it provides theft coverage but only if the theft occurs on the residence premise and it does not provide animal liability, which some private carriers do.

FAIA President Jeff Grady said Citizens’ growth equates to the downfall of the private sector. Fewer choices in the private market is a direct result of Citizens’ growth, he noted.