Article Courtesy of The Sun Sentinel

By Donna Gehrke-White

Published May 31, 2014

As hurricane season bears down on us, Floridians finally can feel some security about their insurance coverage.

Citizens Property Insurance Corp. says it stands in its best financial condition ever: smaller, richer and better able to weather the type of major storm Florida has dodged for eight years.

Citizens holds a record $7.6 billion surplus and has reduced its risk by shedding 30 percent of its policies in two years, including more than 46,000 policies in Palm Beach County and almost 70,000 policies in Broward County.

For property owners, the improved finances provide some assurance that they won't face extra charges to bail out Citizens if catastrophe strikes. That burden would fall on all property owners, not just Citizens' policyholders.

But some consumer advocates warn of another peril. Citizens has shrunk too quickly, they contend, by shuffling policies to smaller, private companies that might not survive a major hurricane.

Where would that leave those property owners? We won't know for sure until a hurricane hits.

And that's inevitable.

Florida has not seen a hurricane since Dennis, Katrina, Rita and Wilma walloped the state in 2005. Florida Insurance Consumer Advocate Steve Burgess calls the storm-free stretch "the most significant factor" in Citizens' financial recovery.

Citizens now has enough money to pay for damages if a once-a-century storm strikes inland policyholders, said Citizens spokesman Michael Peltier. Citizens can handle a once-in-70-year storm for coastal clients, Peltier said. (The law requires Citizens to assess those risks separately.)

For comparison, Hurricane Andrew was considered a once-in-50-years storm.

"We are exceptionally well-prepared for a storm," said Jay Neal, president and CEO for the Florida Association for Insurance Reform, a nonprofit whose members include consumers and insurance-industry representatives.

Less than a decade ago, Citizens faced a far bleaker future, with its money depleted after eighthurricanes hit Florida in 2004 and 2005.

Auto, home and boat insurance policyholders are still paying assessments — extra charges on top of premiums — to replenish Citizens and the state's Hurricane Catastrophe Fund, known as CAT. The assessments total 2.3 percent of their annual premiums.

Citizens' financial strength makes a repeat less likely, experts say.

Potential assessments for Citizens have dropped 77 percent since 2011, when Florida policyholders faced the possibility of $11.6 billion in assessments if a once-a-century storm hit. Now the potential assessments stand at $2.7 billion for the 2014 hurricane season, which starts June 1, Peltier said.

"They are getting close to covering [hurricane claims] without assessing," Consumer Advocate Burgess said.

To shore up finances and reduce its exposure, Citizens has dropped its number of policies from a peak of 1.4 million in April 2012 to 939,342 as of last month.

In Palm Beach County, policies have dropped to 99,618 from 146,290, most of them west of Interstate 95.

In Broward County, they have dropped to 141,297 from 211,174. Again, most of them are west of Interstate 95.

Some consumer advocates say Citizens has to do a better job of protecting former customers. Some have left Citizens only to end up with companies that later went out of business.

Since Citizens started 12 years ago, six of 31 insurance companies that have participated in its "depopulation" program — an effort to move policies to other insurers — have become insolvent and were liquidated by courts, according to the Florida Office of Insurance Regulation.

"We have to be more careful of what companies we are pushing people into," said Sean Shaw, a consumer insurance attorney who formerly served as the state's insurance consumer advocate.

Bill Newton, executive director of the nonprofit Florida Consumer Action Network, agreed that Citizens has to move more slowly to scrutinize companies before they're allowed to be part of the program.

Peltier, the Citizens spokesman, said no company can be part of Citizens' depopulation program unless it has been approved by the Florida Office of Insurance Regulation, which has tightened its vetting and now looks more closely at a company's financial condition and business plan.

"We do a lot more critical analysis," said Richard Koon, the office's deputy commissioner of property and casualty insurance. That includes checking on companies' marketing tactics and ensuring that they have at least $15 million in surplus, up from $5 million previously, Koon said.

Neal, of the insurance reform association, said today's lower interest rates have helped Citizens and private insurers find cheaper reinsurance, which lessens the chance of a private insurer going broke.

He added that consumers are better protected if a larger pool of private insurers helps spread the risk.

Mortgage broker Adam Cohn encourages his clients to shop around, particularly those buying inland, who would not face a direct hit from a hurricane riding in from the Atlantic.

"Many think Citizens is the only game in town, but other providers can offer a better deal," he said.

Beginning this year, homeowners cannot automatically sign up for Citizens' coverage. The Legislature required Citizens to establish a clearinghouse where insurance companies review applications and submit bids for the policies.

Prospective policyholders can be forced to go with other companies if the price is no more than 15 percent higher than Citizens would charge for comparable coverage.

Citizens will expand the clearinghouse to existing customers beginning in August for policies that will begin renewing in the fall, Peltier said.

Currently, 11 insurers participate. The number should increase to 20 by September, Peltier said.

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