Last year, the Florida Legislature mandated Citizens Property Insurance Corp. to offer a cheaper, more limited coverage option to homeowners, potentially saving them up to 70 percent on their premiums.
Citizens, which is trying to raise its prices in order to shrink in size, grumbled about the mandate for months, and has put up several roadblocks to keep people from signing up for the cheaper coverage. Company officials say the so-called HO-8 policy offers dangerously limited coverage that could harm unsuspecting consumers.
“They’re going to flock to Citizens to buy this piece of garbage policy,” Citizens Consumer Services Committee member Greg Rokeh said in December, before throwing up his hands in disgust.
The state-run insurer has been successful in making sure that didn’t happen. In the three months since the so-called HO-8 policy has been available, only 47 people have signed up for it statewide. Many say they have never heard of the new policy option, which would reduce their premiums significantly at a time when homeowners are struggling to pay the rising cost of insurance.
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Citizens has done little to inform homeowners about the HO-8 option and has placed several restrictions on who can sign up for it. The company has also issued a strongly-worded advisory to insurance agents warning them they could be sued after offering the policy to homeowners.
The company has argued that the cheaper coverage option would attract people to Citizens at a time when the state-run insurer of 1.3 million policies is furiously trying to downsize. Company officials have also said the HO-8 policy’s limited coverage would end up hurting consumers, who might not be privy to what kind of insurance they are signing up for until it’s too late.
“We just think that’s it’s really important that (homeowners) know what they’re getting and what they’re not,” said Citizens spokesman Michael Peltier.
Critics say the company is simply trying to keep homeowners from saving money on their premiums, as much as 60 percent in Miami-Dade and Broward counties.
“They put up every blockade they can so that policyholders don’t have an opportunity to get a lower premium,” said Rep. Mike Fasano, a New Port Richey Republican. “Shame on Citizens for doing that.”
Citizens is requiring agents and homeowners to sign two additional forms before people can sign up for the cheaper policy. The forms include frightening language about what’s not covered in the HO-8 policy.
“I don’t know that we’re trying to scare folks away,” said Peltier. “I think there’s a desire that folks know what they’re getting.”
Unlike the standard HO-3 policy, the HO-8 does not cover “water losses,” a fairly common claim area that includes things like plumbing leaks. One of the HO-8 policy options provides only “actual cash value” for damaged property which can be significantly less than the standard “replacement cost” and unacceptable to some mortgage companies.
The HO-8 policy also does not cover “weight of ice and snow,” “freezing,” or “falling objects,” loss claims that are infrequent in Florida. Standard wind damage from a hurricane would be covered.
Florida’s Insurance Consumer Advocate, Robin Westcott, has warned people against flocking to the HO-8 because of the lower rate.
But Westcott conceded that the HO-8 policy is better than going with no coverage at all, a decision many have made as Citizens has raised the cost of insurance by hundreds of millions of dollars in the last two years.
Fasano said many of his constituents can no longer afford coverage from Citizens, and the Legislature mandated the HO-8 to give people a lower-priced option.
Charles Williams, of Spring Hill, is one homeowner who has decided to go bare. As he was struggling to pay the rising cost of insurance with Citizens earlier this year, he wrote a letter to state officials in February saying that he’d like to have the option of a cheaper, less comprehensive policy.
No one ever told him about the HO-8 option before he canceled his insurance policy.
“I haven’t heard about it at all,” he said. “I’m not insured right now. I’m tired of $2,600 a year. They’re a rip-off.”
A fifth-generation Floridian who owns his home outright, Williams said he’d rather take his chances with a hurricane than continue paying annual premiums on the house he purchased for $80,000.
It’s not clear if Williams would even be eligible for the HO-8 policy. Citizens decided to restrict the HO-8 policy option only to homes 50 years or older valued at $200,000 or less. There are about 122,000 Citizens policies that would be eligible, which is fewer than 10 percent of all customers.
At a legislative hearing earlier this year, Fasano and other lawmakers said Citizens’ decision to restrict the policy to older homes was not in compliance with the law passed by the Legislature. The lawmakers said all policyholders should be eligible.
Citizens claimed it restricted the policy in order to emulate the private market, which offers the HO-8 only on a limited basis.
But company officials have openly expressed disdain for the HO-8 policy, saying it would hurt efforts to “depopulate” Citizens. The state-run company is the largest insurance firm in Florida and can levy fees on consumers after a major storm.
“The HO-8 offers less coverage than the (standard) HO-3,” Citizens Chief Actuary Brian Donovan said late last year. “The concern is that the final rate is much cheaper than the HO-3 and may attract new policyholders to Citizens.”
Since then, the insurer has taken several steps to restrict access to the HO-8, resulting in only 47 people signing up for it.
• Citizens tried to uncap rates for new HO-8 policies, and fought against the Office of Insurance Regulation’s decision that rates should decline by nearly 30 percent, on average. Citizens proposed a 7 percent decrease. The company eventually settled for an average decline of 23 percent.
• Citizens spent months in negotiations with the OIR, pushing for higher rates and more restrictions, and threatened to pull out of the discussions. The back-and-forth caused Citizens to miss its January 1 deadline for offering the HO-8. The policy became available on Feb. 28.
• Citizens required all agents to get two additional forms signed by policyholders before they could sign up for the HO-8.
• In an advisory to agents, Citizens warned them that they could be subject to “errors and omissions” lawsuits if they sold the HO-8 policy.
The company has defended all of those activities as efforts to make sure consumers don’t end up with an unexpected and unaffordable bill after a major storm.
Fasano scoffed at that idea, since the company has actively taken several measures — increasing deductibles and reducing coverage — that will leave homeowners precisely in that predicament. The only difference with the HO-8 policy, he said, is that it will save people money on the front-end.
“When I hear that Citizens is concerned about the consumer, I laugh at that,” he said. “I’ve never heard about Citizens being concerned about a consumer.”