Citizens growth called risky
All Floridians could pay if major storm hits

Article Courtesy of The Sun Sentinel

By Kathy Bushouse
Published  May 13, 2007


When Citizens Property Insurance Corp. started in 2002, the idea was the state-backed company would eventually shrink, insuring only those who absolutely couldn't find homeowner coverage anywhere else.

What a difference a new governor makes.

With Florida's homeowners facing crippling property insurance premium increases and more private insurers dropping policies or pulling out of the state, Gov. Charlie Crist began his term in January vowing to fix the insurance crisis. His philosophy: let Citizens, the state's insurer of last resort, compete with big private insurers.

Citizens already was the state's largest home insurer, with 1.2 million-plus policies surpassing State Farm Florida Insurance Co. last year. But Crist and the Florida Legislature have raised Citizens' stake in Florida's insurance market.

And that's a problem, according to a growing chorus that includes state Chief Financial Officer Alex Sink. The worry: All Floridians could be on the hook for an expanded Citizens.

The turnabout in Citizens' mission "has been stunning, in a word," Sink said.

After Crist signs legislation passed on May 4 at the close of the legislative session, Floridians can opt for a Citizens policy if their private company's rates are at least 15 percent higher than what Citizens charges. Citizens will now offer full property coverage, including fire, theft and liability insurance to coastal residents -- east of Interstate 95 in most of South Florida and east of Alternate A1A in northern Palm Beach County -- rather than just covering homes for costly hurricane damage. And the incentive: Citizens' customers will have their rates frozen at December 2006 levels until January 2009.

"I saw an insurance lobbyist say that this would be a catastrophe. Well, I've got news for them. We're in a catastrophe now," Crist told reporters last week. "Ask any family in Florida if they are happy about what they've had to pay in insurance. We're already in a crisis, for crying out loud. The obligation was to try to change that, to turn that ship around."

The concern of Sink and other critics is what happens if a major hurricane hits and drains Citizens. That could force all Floridians to pay extra charges on their property and automobile insurance policies to cover the state company's shortfall.

Floridians already are paying extra charges on their property insurance policies to bail out the company's 2004 and 2005 deficits -- $516 million and $1.7 billion, respectively. If Citizens isn't charging homeowners enough for coverage, that means there's a bigger chance residents statewide will have to dig into their pockets, Sink said.

"At the end of the day Floridians are going to be paying, not private insurance companies," Sink said. "That's to me the scary thing about an environment in which Citizens has so much big market share."

Members of the House of Representatives spent part of the last day of the two-month annual session debating whether those who aren't insured by Citizens should have to bear the nonprofit company's burden if it runs out of money.

State Rep. Don Brown, the House Insurance Committee chairman, said people can live wherever they like in the state, but "they simply do not have a right to expect that everyone else would fund their choices."

"You're picking the pockets of some, so that someone else can have the benefit," said Brown, R-DeFuniak Springs. "We need to think long and we need to think hard about what we're doing."

It's an argument with strong backing from many in the insurance industry, who say the state is heading down the wrong path.

Letting Citizens compete means private insurers are discouraged from coming to Florida or expanding business here as the market stabilizes, said Justin Glover, a spokesman for State Farm Florida Insurance Co., the state's largest private home insurer.

Plus, he said a more competitive Citizens can actually benefit big insurers like State Farm Florida. Not that State Farm Florida wants to lose customers, Glover said, but policy holders now can abandon their policies and switch to Citizens. And that means the storm risk once carried by a private insurance company is now on the state's shoulders.

"That benefits the company," Glover said. "The person who pays the bill is the citizens of Florida."

Estimates aren't available of how the Legislature's actions will expand Citizens, but industry officials project a competitive Citizens will squeeze out private insurers as price-conscious consumers jump to the state-backed insurer for cheaper coverage.

The people's insurer?

Those who support Crist in his efforts to enlarge Citizens acknowledge the risk, but say something must be done to help bring down insurance prices for homeowners.

House Democratic Leader Dan Gelber of Miami Beach calls the Legislature's recent moves "faith-based initiatives," but said the prevailing thinking was there were two choices with Citizens -- either let it expand to spread its risk wider or find ways to shrink the company.

"Right now, it has straddled the fence, and it's a very precarious position," Gelber said. "We have to go one way or another. [Crist] wants to enlarge Citizens' base, and in doing so, he may actually inspire some competition. I think he's doing something."

Citizens board chairman Bruce Douglas said he thinks the company is up to the task Crist has given. The company has overhauled operations and hired customer service staff to handle more policy holders. Two years ago, Citizens faced a torrent of criticism from state legislators for the way it mishandled customers after the hurricanes in 2004.

He thinks doom-and-gloom projections over a mushrooming Citizens are overblown, noting that the company's policy numbers have actually decreased in the past two months.

He doesn't expect a stampede of new customers based on coverage savings, because switching insurance companies could mean people lose multi-policy discounts with private insurers or would no longer be able to use their insurance agent.

Still, more people are applying for Citizens policies, with the company now averaging 70,000 applications a month, the highest level in its history. But Douglas said Citizens only insures about 30 percent of the state's home and condominium owners.

"We really are kind of the people's insurance company," Douglas said. "We're no longer the insurance company of last resort. We're more an alternative insurance company with more competitive possibilities."