Much work on Citizens undone

Article Courtesy of The St. Petersburg Times

By DAN GELBER Special to the Times
Published  February 12, 2007

In its recent special session, the Florida Legislature passed a bill intended to address the economic crisis our state faces due to spiraling windstorm insurance rates. All Democrats supported the bill because it represented the first time the Legislature seriously attempted to reduce rates and deliver long-overdue consumer protections.

But while the bill we passed was a good start, it will not deliver meaningful relief to everyone who needs it. We have much more to do.

The main thing we did was enlarge the state's involvement in the reinsurance business. Reinsurance is the expensive backup insurance that insurance companies buy to cover possible losses in the event of an active hurricane season. The bill will allow the state to provide less expensive reinsurance to private companies who will have to pass their savings directly to homeowners in the form of premium reductions. Although the risk of future assessments will be greater in the event of a bad storm season, consumers in the private market can expect 10-40 percent discounts on their current premiums.

We also implemented reforms to change the insurance-friendly rate-setting process.

Where we fell short, however, was how we dealt with the obscene rate increases felt by those Floridians who are held hostage in Citizens Property Insurance Corp. Citizens, the state-run insurance company, was created to be the insurer of last resort and was required by law to charge more than private insurers. As private insurers abandoned higher-risk policies, Citizens has become the largest insurer in the state with more than 1.3-million policyholders. Its service is subpar. Because it is a risk pool made up of mostly high-risk customers, its rates have gone through the roof.

The bill we passed last month will not provide enough relief to Citizens' customers. We did stop a 56 percent rate increase that should not have been there in the first place. We also postponed for one year a 21 percent increase that would have made Citizens' rates more financially sound. But stopping or postponing huge rate increases provides little relief to homeowners who have already experienced doubling and tripling of their rates.

The best scenario offered by last month's legislation is a likely 5 percent to 18 percent reduction of Citizens bills. But much of that comes with strings or is speculative. For instance, a good part of the relief will require Citizens customers to use Citizens for all their property and casualty insurance - not just windstorm. Many folks will not want to abandon their current private insurer for a company that has not proven itself competent.

I believe if Citizens customers are to get truly meaningful relief, the Legislature and governor need to make a choice: Let Citizens expand significantly so that it spreads its risks among both high- and low-risk policyholders; or get homeowners out of Citizens and into the private market with incentives that will result in substantial rate reductions. For instance, we could offer even greater reinsurance discounts to private insurers who accept Citizen policies at substantially reduced rates.

This bill was far and away the most proconsumer insurance measure the Legislature has passed in recent years. Of course, given how much control the insurance industry has had on Florida's Republican-dominated Legislature, the bar was set mighty low. But I credit Gov. Charlie Crist with leading the charge and setting the tone. Whether this becomes a blip in a bad situation is yet to be seen. Real rate relief for Citizens customers hangs in the balance.

Rep. Dan Gelber of Miami is the Democratic leader of the Florida House.