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.”
Artiles contended that the program’s eligibility rules were written in ways that exclude all but a few privileged insurers, which are represented by Florida lobbyists.
Sen. Mike Fasano, R-New Port Richey, said the concept of taking money collected from policyholders and lending it to private companies was “outrageous.” He also argued that Citizens may end up giving money to private companies that eventually go bankrupt without paying back the loan.
Program documents from Citizens acknowledge that the company may not have the power to enforce its contract with a private company that becomes “financially impaired.”
That’s exactly what Citizens policyholder Allan Schwartz fears.
“The last time that Florida got involved with takeout companies, it was a disaster,” said Schwartz, of New Port Richey. “Most of them, within a year and a half, pulled out of the state.”
Artiles is one of several lawmakers who believe the Citizens’ board has erred in advancing major new policies swiftly without consulting the Legislature or waiting for public input.
The committee unveiled the new proposal on Thursday with plans for final approval on Friday. No public input was accepted at the meeting, and Citizens’ lawyer spent considerable time defending whether the plan complied with current law.
Proponents of the program say it is an inexpensive way to take much of the risk off of Citizens books, a high priority of Scott. Other risk-reduction options were much more expensive, said Gilway.
If a once-in-a-lifetime type hurricane hits Florida, Citizens may have to levy fees on all insurance policies to cover a shortfall.
By lending money to private insurers, rather than buying expensive backup insurance, Citizens could save money on its risk reduction campaign, Gilway said. The chance that consumers might be hit with a post-hurricane fee may be reduced. The amount of the post-hurricane fee could be decreased by as much as 30 percent after a monstrous storm.
“If the wind blows next year, and we don’t make this decision, there will be $1.17 billion more in assessments on the backs of Floridians,” said Gilway.