Expanding state-backed Citizens Property Insurance is the best hope Floridians have for stabilizing the state's insurance market and moderating insurance rates. The solution isn't perfect. A series of bad storms or a huge Category 5 hurricane hitting South Florida still could leave policyholders on the hook for enormous losses. But with efficient management, more-competitive rules and some luck, Citizens can protect Florida's economy from a meltdown and residents from unsustainable premium hikes.
The Legislature started the insurance reforms during the Special Session early this year. Bills in the House and Senate (S 2498/H 1267) now offer to move the process forward and should also be approved.
The Special Session froze Citizens rates at 2006 levels, rolled back proposed rate hikes and scrapped the mandate that Citizens charge the market's highest rates. The Legislature also allowed homeowners to opt for a Citizens policy if the rate offered them by private insurers was 25 percent higher than Citizens' rate.
All these changes made Citizens more competitive. The bills in the House and Senate would further improve Citizens. The current Senate bill, introduced by Sen. Rudy Garcia, R-Hialeah, would allow a homeowner to buy a Citizens policy if the current insurer's rate was 15 percent higher than Citizens' quote. This would allow Citizens to attract more customers, including those in less-risky inland areas that would help spread hurricane risk.
The bill would also bar new Florida-only subsidiaries of national insurance companies and require those companies to report their consolidated earnings along with rate-hike requests. These also are good provisions:
• First, existing subsidiaries, such as State Farm Florida, would think twice about pulling out of the state if they knew they wouldn't be able to return under the same conditions.
• Second, Floridians should know what profits a parent insurer is making while its subsidiary demands exorbitant rates here.
The House bill, introduced by Rep Julio Robaina, R-Miami, is the same as the Senate's except for an unwise provision that should be stripped. That provision would freeze Citizens' rates through 2008. This would be an actuarially unsound move and likely to hit policyholders with huge rates hikes in 2009.
Citizens no longer is the state's insurer of last resort: It has grown into the state's largest residential insurer with more than 1.3 million policies, $432 billion of exposure and growing reserves. Citizens' management must ensure improved service and efficient operations. The Legislature, in turn, should spread the risk to policyholders by allowing Citizens to compete more fairly with private insurers.