Florida Frets That With Proposed Rate Cut, Citizens Could Be Too Competitive

Florida’s state-backed property insurer’s proposed rate reduction is raising questions about whether it will make the insurer competitive with the private market.

Citizens Property Insurance Corp. recently proposed 2015 rates that include a statewide average 2.9 percent rate decrease on all residential policyholders.

The proposed rate cut comes after eight years without any significant hurricane losses and five years of rate increases following the so-called “glide-path,” which limits annual rate increases to 10 percent.

The rate changes also follow Citizens’ recent decision to transfer $3.1 billion in risk for the 2014 hurricane season through a combination of traditional reinsurance and catastrophe bonds, a $1.5 billion deal that is the largest of its kind on record.

If approved by regulators, seven in 10 Citizens personal lines policyholders will see a rate reduction next year. The statewide average homeowners’ premium would drop from $2,538 to $2,379.

Not everyone, however, is greeting the proposed rate cut as good news.

Florida Property and Casualty Association Executive Director William Stander said he has heard rumblings through the industry over what the rate cut could mean for insurers’ expansion plans.

“I have heard some concerns among companies that Citizens’ rate trajectory potentially could interfere with their depopulation efforts,” said Stander.

Florida Association of Insurance Agents President Jeff Grady said that rate changes pitted what actuaries might calculate against public policy decisions. But just as a matter of perception, he said, any rate cut raises questions.

“It does seem to depart from the insurer of last resort having the highest rates,” Grady said.

As to the matter of competition, the state Office of Insurance Regulation approved 43 private insurer rate filings between January 1 and June 30, which cover homeowners’, mobile homeowners’ and dwelling fire policies. Out of those 43 insurers, 12 received rate decreases and eight resulted in no changes in rates.

Even the insurers that are receiving rate increases are raising rates modest amounts averaging below 10 percent.

“The market has started floating downward and Citizens is following the market in that sense,” said Grady. “But some insurers are not and in that sense Citizens is more competitive.”

One other issue that is being raised is whether Citizens should lower its rates as long as there remains a potential assessment burden on all state policyholders. As a matter of record, that assessment burden has dropped substantially.

In 2011, for a one-in-one hundred-year storm the projected statewide assessment amount reached $11.6 billion. That has been reduced to its current projected level of $2.4 billion.

Citizens Spokesperson Michael Peltier said the insurer is aware of the issues that are being raised over the rate reductions. However, he said, coming after so many years of rate increases, the insurer’s policyholders deserve what the actuaries recommended.

“We are sensitive to our mandate to be the market of last resort,” said Peltier. “But we are not insensitive to the burdens rates have on our policyholders.”

Peltier also noted that in some high-risk areas, Citizens remains the only market and most of those rates have yet to reach actuarial levels.

One consumer group has come out in support of Citizens’ proposed rate changes.

Florida Association of Insurance Reform President Jay Neal said Citizens faces a political environment that no matter what action it takes it is going to face critics. Even so, he said, Citizens’ officials have to manage the insurer in the best way possible.

Neal said that in his view, Citizens’ recent actions have brought a degree of stability to the insurer.

“I think things are in a relative balance,” Neal said. “They went and bought reinsurance at historically low rates, the assessment burden is going down and they started the clearinghouse.”

The clearinghouse gives private insurers the first chance to write a policy before it goes into Citizens. Applicants who receive an offer of coverage at or below Citizens’ rates are not eligible for Citizens’ coverage. Much is riding on the fact that Citizens renewal policies will go through the clearinghouse starting November 1.

Citizens President Barry Gilway said that he expects the downward trend in the number of Citizens’ policies will continue.

At a recent meeting of the Economic Club of Florida, Gilway predicted that the number of Citizens’ policies should drop from its current level of 928,546 to about 850,000 by year’s end.

Gilway said the goal is to reach a low of 650,000 by 2018, a number that will include primarily coastal policyholders, homes located in sinkhole areas and older homes that private insurers will not cover.

“We think 650,000 is about as low as you’re ever going to get,” said Gilway.