TALLAHASSEE -- Money that Citizens Property Insurance Corp. has raised by hiking rates, reducing coverage and dodging hurricanes in recent years could soon be transferred to private insurers in the form of low-interest, forgivable loans.
A Citizens committee moved Thursday to advance a new $350 million program aimed at incentivizing private insurers to take over policies from the state’s largest insurer. The full board is expected to approve the plan Friday and homeowners could begin to be shifted out of Citizens in December.
“We have to reduce the overall size of Citizens,” said Barry Gilway, president of the state-run insurer, during a meeting of its Depopulation Committee. “If we are to be successful in moving a large number of Citizens’ customers to financially secure markets, this program is compelling.”
The program is the latest initiative by Citizens’ ambitious board of directors, which is operating more independently of the Legislature in an unprecedented effort to move hundreds of thousands of policies into the private market.
In the last year alone, Citizens has raised rates, slashed coverage and denied policies in an attempt to make itself less attractive and prop up the state’s limited private market. Company executives and Gov. Rick Scott say the insurer of 1.4 million poses a financial risk to the state and needs to rapidly shrink.
Under the new “surplus note” program, Citizens would take capital from its record $6.2 billion reserves and lend it — under favorable terms — to private insurers who agree to take over policies and keep them for 10 years.
The 20-year loans require interest-only payments during the first three years and are forgivable, in part, if hurricanes hit the state. Citizens acknowledges that the interest rate of about 1.6 percent “does not approximate the true market rate” for similar loans and that Citizens could be left unpaid if an insurer goes belly up after receiving a loan.
“If the wind blows, we have a downside,” said Citizens Chief Financial Officer Sharon Binnun, pointing out that up to 20 percent of the loan could be forgiven each year there is a hurricane. “If there is a storm in any one of the first five years… there’s an opportunity for the [insurers] to have some [debt ] relief.”
The proposal mirrors one presented in July by a lobbyist for Tower Hill Insurance, which currently insures more than 300,000 policies in Florida. Tower Hill and another insurer that lobbied for the program have already indicated that they would take over more than 180,000 policies if Citizens provides a multimillion-dollar incentive.
Tower Hill and other insurers interested in receiving a low-interest loan funded by Citizens’ surplus have committed to raising rates no more than 10 percent per year during the loan’s interest-only first three years. After that, rates could go up further.
Critics of the proposal called it a “sweetheart deal” for insurance companies and “corporate welfare” funded by the premiums collected from Citizens’ customers over the past several years. With no hurricanes hitting the state since 2005, Citizens has saved up a massive treasure chest of $6.2 billion, money that private insurers find attractive.
“The insurance companies have hit the lottery,” said Rep. Frank Artiles, R-Miami. “They get no competition, they circumvent the Legislature and they get exactly what they want. “This is a classic Tallahassee get-rich-scheme that has bitten us in the butt before.”