Florida’s Citizens Insurance Proposes to Hike Some Rates, Decrease Others

After three years of no increases, Florida’s Citizens Property Insurance Corp. is about to hike premiums up to 10 percent for many of its policyholders, although not for as many as some insurance insiders and actuaries think it should.

Rates for a majority of the more than one million policyholders in Florida’s state-backed property insurer are likely to rise up to 10 percent starting in January, but rates for some others will go down by varying degrees. Citizens has yet to figure out exactly how many policies will see higher or lower rates but many of the residential and business policyholders with rates going up are in south Florida communities.

According to John Kuczwanski, public information manager for Citizens, the proposed overall rate plan, if approved, would raise about $140 million next year.

While Citizens is recommending rates for 2010, the final decision will be up to the Office of Insurance Regulation and Insurance Commissioner Kevin McCarty, who could make changes.

The decision to grant any rate decreases at all at a time when most observers agree that Citizens needs to shore up its funds to cover potential losses from hurricanes has triggered concern, at least within insurance circles. Critics note that all policyholders across the state could be assessed to cover losses should Citizens be unable to pay all of its claims.

Industry representatives and even Citizens’ own actuaries think that Citizens should raise not just some but all rates or at least refrain from decreasing any rates at this time.

But the Citizens’ board voted 7 to 1 to recommend a rate plan that includes some decreases. In so doing, the board was in part heeding legal advice interpreting new legislation (HB 1495) that instructs Citizens to follow a “glide path” by raising rates no more than 10 percent per policy annually for the next several years until rates are actuarially sound. The new law does not directly address whether rate decreases should be granted. But lawyers for OIR and Citizens concluded that Citizens is obligated to implement any decreases that might be actuarially justified.

Citizens’ rates have in the past been based on the rates charged by the top 20 property insurers. However, in 2007, the Legislature froze these rates at 2006 levels.

After having had its rates suppressed for three years, Citizens’ own actuaries have said that it would need to raise rates about 40 percent on average on residences, more than 10 percent on commercial residential properties and as much as 140 percent on wind-only commercial property policies to reach proper funding for its exposure, which is about $405 billion for its 1,040,000 policies.

Industry representatives are disappointed in the rate decreases and not everyone agrees with the legal interpretation that Citizens must grant decreases.

Sam Miller, executive vice president, Florida Insurance Council, acknowledged that the decision to reject the actuaries’ recommendation of no rollbacks was not an easy one for the board but warned that it could have repercussions for all Florida property owners.

“The Citizens board had a tough decision to make. If folks are paying too much in Citizens, that’s not right, but almost everyone has been paying too little and that is not right either,” said Miller. “Hurricane losses not covered by Citizens premiums are paid through assessments on all Florida homes, not just Citizens policies, all business policies and all auto policies. The Actuarial Committee, which recommended no rate rollbacks, felt Citizens should collect as much premium as possible, under the 10 percent cap on increases, to guarantee that Citizens can pay its claims on time and reduce statewide assessments. The board has chosen not to go this route so Citizens will not be moving as rapidly as possible to build sufficient reserves and we probably will have dramatic statewide assessments after a major hurricane.”

Some independent insurance agents– who place policies with Citizens when coverage from their private carriers is not available — believe that regardless of what OIR and Citizens’ legal counsel says, Citizens could have and should have bypassed any rate decreases at this time to move it even closer to actuarial soundness.

“This is all political interpretation,” Jeff Grady, president, Florida Association of Insurance Agents, told Insurance Journal.

Grady rejects suggestions that implementing decreases where indicated is the fair thing to do. “We believe that it is not only not fair but that it is not contemplated by a statute clearly designed to reduce the burden of assessments on 84 percent of those residences not insured by Citizens,” he noted in a letter to Citizens board members before they voted.

FAIA also told board members that it believes that the “goal of actuarial soundness should be pursued vigorously.” Rate decreases for some in Citizens means that it will underprice the private market, attracting more policies into the state-backed fund, expanding its exposure and “further increasing the burden of assessments on over 5 million home and condominium owners throughout Florida,” Grady warned to the board.

FAIA’s advice went unheeded.

Citizens’ Kuczwanski defended the board decision.

“Given that Citizens rates have been frozen for three years, any rate adjustment that brings us to being closer to actuarially sound will ultimately bring Citizens into a better financial position,” said Kuczwanski.

While disappointed, private insurers also acknowledged that at least all Citizens rates are no longer frozen.

“Even with today’s decision to take away some of the revenues which would have been available through the increases, we at least will begin to move away from the rate freeze and take a baby step toward what Citizens should really be charging,” said Florida Insurance Council’s Miller.

“Perhaps, next year’s legislature will decide to give Citizens flexibility to generate adequate surplus quicker and reduce the size of the statewide assessments that will follow a major hurricane,” Miller said.