Citizens switch brings huge rate increases, little choice for customers

You have little choice if policy is taken over

Article Courtesy of The Sun Sentinel

Published  September 4, 2006


Michael Burrell never asked for a new insurance policy for his Boca Raton home.

Because he lives east of Interstate 95, an area where few private property insurers are willing to tread, Burrell assumed no company other than state-backed Citizens Property Insurance Corp. would cover the wind risk on his three-bedroom, three-bathroom home.

Then in late June, Burrell got a notice in the mail that his coverage was shifting to a different insurer. Last year, his annual premium cost $1,595. This year, it's $4,581 -- a 187 percent increase.

Staying with Citizens wasn't an option. With a private insurance company now offering to cover his home, Burrell couldn't refuse -- no matter the price.

This problem exposes an unintended hitch in Citizens' "takeout program," state insurance officials say, in which private insurers are taking policies from Citizens but charging much more than the state-run home insurer. The law says Citizens is a last resort for homeowners who have no options for private insurance coverage.

Burrell is one of 41,628 Florida homeowners who will be switched this year from Citizens to either Florida Peninsula, a year-old company in Boca Raton, or to Homewise Insurance, a Tampa firm that just started doing business this year.

The two companies are participating in the takeout program, which allows private companies to take homeowner policies from Citizens, now Florida's largest property insurer. Both companies are targeting homes in Citizens' so-called high-risk area, which is generally east of Interstate 95 or U.S. 1 in South Florida.

State Insurance Commissioner Kevin McCarty is aware of the dilemma facing some Citizens' customers.

"By law, they can't go back in [Citizens] so these people are put in this unfortunate situation," said Bob Lotane, a spokesman for the state Office of Insurance Regulation.

The program to encourage private insurers to take Citizens' policies "wasn't planned this way," Lotane said. "We feel terrible about it. The commissioner would like to do something but he's constrained by statute."

McCarty is reviewing options to help affected Florida homeowners, Lotane said, "but as of now, we haven't been able to identify any."

Burrell, 63, is retired and living on disability benefits. "I was so shocked," he said about his bill from Florida Peninsula Insurance Co. "You don't plan on that extra money, which is not a couple of hundred bucks. It's a lot of money."

Florida Peninsula stands to collect $18 million in bonus money from Citizens, provided the company holds onto the more than 80,000 policies for three years, Citizens spokesman Rocky Scott said. In addition to the 9,974 policies it removed from Citizens this year, it took another 75,556 policies in 2005.

Homewise, which took over 31,654 Citizens' policies, isn't seeking any bonus money. The company doesn't want to have to comply with requirements such as having to hold onto policies for a certain amount of time.

Left without a choice

Because Florida Peninsula and Homewise are charging people substantially higher premiums than Citizens, it's caused financial stress for homeowners who now have private insurance coverage for their homes but can't afford it.

The problem reflects "the confluence of unfortunate circumstances," said Jeff Grady, president of the Florida Association of Insurance Agents.

Problem No. 1: While Citizens is required to charge higher rates than those of private insurers, the formula used to determine those rates is an average of the top 20 insurance companies in a given region. Many of those insurers in Broward or Palm Beach counties "haven't written [new insurance policies] in forever," Grady said.

Problem No. 2: Citizens' rates aren't required to be based on the 1-in-100-year chance of a catastrophic storm hitting the state, while private companies' prices are, Grady said.

The result: Homewise and Florida Peninsula have become the only private insurance option for many, and both are more expensive than Citizens, which used to charge the highest rates statewide. These homeowners have no choice because Citizens no longer will cover them nor will other private insurers.

"What we need to do is change the law and allow the consumer obviously the right to choose and not make it a regulatory interpretation that says that they can't," Grady said.

Kerry Goins, a bankruptcy paralegal who has lived in her three-bedroom, two-bathroom Oakland Park home for 16 years, said her annual premium with Homewise is $3,558, a 154-percent increase over the $1,400 she paid last year.

She doesn't understand why she's paying so much more for the same coverage she had with Citizens. And she doesn't understand why Homewise selected her house to cover but her neighbors remain with Citizens.

One neighbor is paying $1,900 on a house of similar size and age, Goins said. "I would beg somebody to give me a bill for $1,900."

The executives in charge of Homewise and Florida Peninsula say they understand that people are upset about the higher premiums, but say that Citizens' rates will go up soon.

If you look at the expected rate increases for Citizens, its rates will climb to "our level or higher," Homewise president Dale Hammond said.

The executives also say they're at a disadvantage because Citizens can assess all of Florida's home insurance policyholders to make up for annual deficits. Citizens already has assessed Floridians for a $516 million deficit from 2004, and will soon weigh assessments to make up a billion-dollar shortfall in 2005.

The private insurers also have to buy reinsurance, which is insurance for insurance companies, to help them pay homeowner claims after a hurricane, said Roger Desjadon, president of Florida Peninsula. Citizens isn't required to buy reinsurance.

Homeowners in a lurch

Hammond and Desjadon said they think they can make a reasonable financial return by insuring homes in high-risk areas -- usually along the coast -- especially because other private insurers won't cover those properties.

"What am I going to do? Where am I going to go? I can't go back to Citizens, even if I wanted to," said Megan Malanga, 37, whose Citizens policy on her four-bedroom, 21/2-bathroom house in Pompano Beach was taken over by Homewise. She now pays $7,700 for her Homewise policy, compared with the $3,400 Citizens charged.

"There's no competition, and since there's no competition there's no incentive for these companies to lower their rates," said Malanga, an equity research analyst. "I just wonder at what point are the politicians going to do something about this."

Florida Peninsula and Homewise are charging higher rates because of their reinsurance costs, said Lotane, the office of insurance regulation spokesman. Insurance regulators didn't foresee those steep reinsurance increases when approving the companies' takeover of Citizens policies, he said.

Meanwhile, some homeowners are stuck paying a much higher price for property insurance.

Burrell's been in his home nine years, added a new kitchen and planned to stay. Now he's wondering how much longer he can afford it.

"If prices keep going like they are, I'm going to have to think about moving to another state or something," he said.