Citizens fights new policy because it saves consumers too much

Article Courtesy of The Palm Beach Post

By Charles Elmore

Published December 18, 2012


One lawmaker says insurer is flouting law requiring HO8 policy

State-run insurer Citizens moved Friday to block customers from saving nearly 30 percent on their 2013 premiums if they choose less coverage under a new state law — unless regulators agree to kill most of the savings first.

One legislator blasted the company’s position as defying the law and hurting homeowners who could benefit from the choice, including seniors on fixed incomes who may have paid off a mortgage.

“In my opinion, Citizens is circumventing or breaking the law,” said state Rep. Mike Fasano, R-New Port Richey. “God forbid we save customers money.”

The law requires Citizens to offer a kind of policy called an HO8 by January. It gives customers a choice to buy coverage closer to the cash value of the home, not the cost to replace it. It covers fewer perils and obligates Citizens to pay out less in potential claims compared to a standard HO3 policy. In that sense, it reduces the company’s risk exposure.

The bad part from Citizens’ point of view: It could save customers a lot of money on premiums. It might make Citizens more popular. And the last-resort insurer is trying to unload its 1.5 million customers into the private market, not keep them.

Citizens argues that the new policy should cost only 7 percent less than a HO3 policy. The state’s Office of Insurance Regulation proposed it should cost 28 percent less.

The Citizens board authorized its staff to withdraw the rate filing entirely unless state regulators move much closer to the company’s position. No filing means there is no way to establish a rate or offer the product, reasoned board member John Rollins, appointed by Gov. Rick Scott.

Regulators said discussions are ongoing.

“The Office of Insurance Regulation has been working diligently with Citizens on this filing,” an OIR spokeswoman said. “Currently, it is not in a tenable position for approval. However, we look forward to continuing the dialogue with Citizens and addressing the concerns related to this filing.”

Citizens officials said they’re doing this in part to protect consumers. Homeowners might not understand what they’re purchasing, they said.

“People could gravitate to it,” Citizens Chief Financial Officer Sharon Binnun said. “It could be bad for the consumer if they don’t understand what they’re buying. We could grow in a product nobody else writes.”

State Insurance Consumer Advocate Robin Westcott said she’s aware of perhaps one private insurer offering HO8 policies in the state, but she echoed some of Citizens’ concerns about whether the policies are a good idea.

Jay Neal, executive director of the Florida Association for Insurance Reform, warned in a letter to state officials the HO8 policy “could ultimately harm consumers who incur losses from non-covered events.”

Materials provided by Westcott showed the HO8 policy would cover some major perils HO3 does — windstorm, fire, explosion, riot, vehicles, aircraft, smoke, vandalism, theft, volcanic eruption and catastrophic ground cover collapse. But it wouldn’t cover others, such as falling objects, weight of ice and snow and accidental discharge of water or steam.

But Fasano said it’s not Citizens’ job to prevent customers from having a choice provided by state law.

For some, premiums have jumped dramatically because a Citizens reinspection campaign has whacked discounts for storm-resistant features. Three out of four homeowners visited have seen bills go up. Some annual premiums have doubled.

In addition, Citizens and other insurers have raised bills by reassessing what the replacement costs for a home would be. It’s not uncommon for an insurer to claim the replacement cost is twice the market value of the home. So a customer may be required to insure a home for, say, $400,000, even if the home would sell for only $200,000.

With an HO8 policy, consumers with a mortgage would need to find out what coverage a lender would approve, but it broadens choices for those in position to take advantage.

Some residents, including some seniors on fixed income with paid-off mortgages, say rising premiums are forcing them to consider whether to “go bare” and drop coverage entirely, self-insuring at great financial risk.

Many have no alternative but Citizens. The new policy would offer an option somewhere between standard coverage and none at all.

Citizens should follow the law and give an informed consumer that choice, Fasano said.

“They just don’t get it,” Fasano said. “People are losing their homes. Look at the foreclosure statistics. Here’s an opportunity for Citizens to shrink their liability. If we can help homeowners in some way reduce their costs, let’s do it.”