Homeowners catch break as Citizens postpones insurance rate hike

Citizens delayed its vote on a 56 percent insurance rate increase. But another assessment is coming.

Article Courtesy of The Miami Herald

Published  December 8, 2006

South Florida homeowners have caught a break -- for now -- on a possible massive insurance rate increase.

But there will be 1.4 percent surcharge to make up the 2005 deficit for the state-run insurer of last resort starting next July.

Citizens Property Insurance's board of governors postponed a rate filing Thursday that would have hiked premiums on homeowner windstorm insurance by nearly 56 percent. It tabled the decision until after lawmakers meet next month to work on possible solutions to the state's insurance crisis.

There's growing sentiment in Tallahassee that the law requiring this big increase needs to be modified -- or scrapped -- because of the detrimental economic impact it would have on consumers and business owners throughout the state. The board heeded calls from House Speaker Marco Rubio and others for the delay.

''This isn't just an insurance problem; it's an economic problem,'' said Bruce Douglas, chairman of Citizens' board of governors. ''I'm encouraged'' that the Legislature is open to suggestions as they approach this problem.


In Tallahassee, Gov.-elect Charlie Crist called Citizens' decision "good news for the people.''

''Obviously, it's a situation that's awfully important to an awful lot of people. It's the reason we are having a special session -- it's to address this very issue,'' said Crist.

The goal of the now-problematic law, known as Senate Bill 1980 and passed in May during the final hour of this year's regular legislative session, is to raise Citizens' reserves rapidly. The law requires that Citizens have enough reserves to cover the losses from a major storm, the kind that would hit once in 70 years. But given Citizens' exposure that would require a huge rate hike that could spell financial ruin for many homeowners and business owners.

The bill requires that Citizens factor into its rates the cost of buying reinsurance -- insurance insurers buy to cover a portion of their losses -- in the private market. Because reinsurance rates have risen so much in the past year, Citizens didn't buy private reinsurance in 2006. Citizens traditionally buys reinsurance from the Florida Hurricane Catastrophe Fund, which is less expensive.

If the only change made during the special session is to allow insurers to buy more reinsurance from the CAT Fund, that would benefit Citizens and reduce the rate increase needed to meet the law's requirements.

Another possible change would be to only require the insurer to raise reserves for a one-in-50-year storm.

Paul Palumbo, a senior vice president with Citizens, said such a mandate would require a 20 percent increase -- rather than the nearly 56 percent hike -- to cover reinsurance costs.

Douglas said it would be appropriate to wait and see what happens during a special legislative session. If Citizens has to go through with the filing, the board can approve it at its Jan. 25 meeting.

Besides modifying the current insurance law, there are several changes Citizens would like to see as lawmakers take up the insurance problem next month.


Most significantly, Citizens would like to have the authority to assess all property/casualty policy holders in the state to cover a deficit -- just like the CAT Fund does now. Currently, Citizens assesses its own policyholders as well as all homeowner policyholders in Florida.

Douglas explained that a bigger base for assessments -- about three times more than the current base -- would reduce the amount that each policyholder is surcharged.

Citizens also would cover the entire homeowners policy including fire and theft, not just the windstorm portion, and would also like the Office of Insurance Regulation set its rates twice a year.

Christine Turner, Citizens' Tallahassee lobbyist, said Citizens is working closely with Rep. Julio Robaina of Miami to draft a bill to introduce in the special session.

Citizens' still needs to make up its $1.6 billion deficit from 2005. Lawmakers appropriated $715 million from the extra revenue generated by the hurricane rebuilding effort to cover a portion of the deficit.

Earlier this year, the board approved a 2.07 percent surcharge to cover another $163 million. Homeowners started seeing that extra charge on their policies as they come up for renewal after October.

The remaining $887 million from the 2005 shortfall will be made with the 1.4 percent charge over the next 10 years. That means a $14 per $1,000 of annual premium.

Citizens' plans to file with regulators next month, and it should begin hitting homeowners policies after July 1.