Citizens a better neighbor?

The state-run homeowners insurer prepares for a flood of new customers, many from State Farm, under new rules.

Article Courtesy of The St. Petersburg Times

By Tom Zucco
Published  January 26, 2007

Florida's insurer of last resort should brace itself to take on tens of thousands of new customers, many of them from State Farm, courtesy of the state's new insurance relief law, the head of Citizens Property Insurance said Thursday.

That's because Citizens might soon be cheaper.

Citizens board chairman Bruce Douglas cited recent newspaper surveys of 1,500 territories throughout the state that show proposed base rates for Citizens vs. those for State Farm Florida.

State Farm was used as a benchmark because it is the largest private carrier in the state, with more than 1-million policyholders, and it remains a major player in high-risk, or coastal, areas.

In several coastal counties, including Pinellas, Broward and Miami-Dade, a new Citizens premium could be as much as 50 percent less than the same coverage from State Farm. The numbers are a generalization, and premiums can vary widely, depending on factors such as the size, age and type of construction and location of a home.

But in the Shore Acres area of St. Petersburg, for instance, the proposed State Farm premium is $2,737. The proposed Citizens premium is $1,975, a difference of $762.

"There are a number of locations where premiums are higher than Citizens," Douglas said. "We may be surprised at the number of people coming to us because the (private companies') rates are higher than ours."

Until now, Citizens took only homeowners who couldn't find coverage on the open market. In many cases, especially along the coast, that forced homeowners to stay with a private carrier, even though the company charged more than Citizens.

But now there's a cap. Under the state law signed by Gov. Charlie Crist on Thursday, consumers can either stay with their private carrier or switch to Citizens if the private-market offer is at least 25 percent higher than the Citizens offer. The new law also removed another hurdle for Citizens by allowing it to write other lines of a homeowners policy, such as fire and theft, in the high-risk area. Until now, Citizens could do that only if no other company would provide it.

Although Citizens had its rates frozen at the Dec. 31 level, Douglas said the two changes in the law will make Citizens financially stronger by spreading its risk and allowing the company to build its reserves.

"We have $6.7-billion in cash and investments," Douglas said, "and we're taking in about $200-million a month, so we should be in pretty good shape come May 31."

The picture is not as rosy for State Farm.

"We could be looking at losing 10 percent of our business," State Farm spokesman Chris Neal said Thursday, "or about 100,000 polices."

In a roundabout way, losing customers in the high-risk area could help State Farm by reducing some of its greatest risk. But Neal said some customers might stay with the company because of its customer service, something critics of Citizens often point to as a major flaw.

Douglas defended Citizens, saying the average hold time at its call centers has dropped from four minutes to less than a minute.

And Citizens will have a new operation plan, scheduled to be submitted Feb. 13, that could include quarterly statewide policyholder meetings, combining all of Citizens' accounts into one and a campaign to better train the 8,500 agents who service Citizens policies.

Apart from the changes to the way Citizens does business, there was other fallout from Monday's legislation. The prospect of increased borrowing by the state-backed Florida Hurricane Catastrophe Fund prompted Standard & Poor's to cut its rating on the fund's existing $4-billion debt from AA to AA-.