Braving the storm of criticism

Few people would envy Bruce Douglas' job.

He's the chairman of the board of governors of Citizens Property Insurance, the state-created insurer that was created as a stop-gap for consumers who found no other company to cover fire, theft and windstorm damage.

But after eight hurricanes hit Florida in two years, private insurers have pulled back. For too many homeowners, Citizens is the only insurer. It's now the largest insurer of homes, condos and mobile homes, with more than 1.2 million policies on its books. The storms left Citizens with a combined deficit of $2.1 billion for 2004 and 2005.

But the winds hardly blew in 2006, sparing Citizens and Florida. The insurer should end the year with a $1.2 billion surplus.

By next June, when the next hurricane season is upon us, Citizens should have $2.7 billion in reserves.

In recent months, Douglas, who was appointed to this volunteer job by Gov. Jeb Bush, has put himself out there. He has faced angry homeowners in Fort Lauderdale, Cocoa Beach and St. Petersburg. He has defended Citizens' role and work. At a meeting in Key West last month, homeowners called the insurer ``arrogant.''

Douglas spoke with The Miami Herald last week from New York, where he was meeting with the bond rating agencies as Citizens begins the process of refinancing taxable bonds issued in 1999. It hopes to replace the bonds with less expensive tax-free bonds.

Q. What's Citizens' toughest job right now?

A. I'm not trying to be the consumer advocate. But I know that the policyholders are suffering. I listen to them every day. They aren't complaining about service, they are complaining about their rates.

But it's true, the rates in relation to Citizens' potential maximum loss [if a major storm hits a densely populated area] would have to go higher. And they should, but it's just a question of digestion.

Q. But isn't that the problem? The state's new insurance law requires Citizens to raise rates to build reserves rapidly to have enough money to pay claims after a catastrophic storm. It would require an increase of nearly 56 percent on top of other hikes already approved. It's a lot of money given Citizens exposure. Are there any alternatives?

A. One of the things [lawmakers] may consider doing is spread [this initial 55-percent increase] over three years.

They could consider [not including] the cost of [buying] reinsurance in the private market. We bought [reinsurance] in the private market in 2005. The rate they offered us versus the coverage they offered us made sense. But in 2006 we elected not to buy it because the rate was so high.

In 2007, I'm guessing the cost of reinsurance will go down somewhat. But the question is - does it go down enough to justify employing that money for whatever coverage they're offering us.

But [the new law] requires us to include the cost of reinsurance. So maybe that is something they can look at and do something with to alleviate the one-time massive increase.

Q. Is there a point when you don't have to raise rates anymore, or at least not as much?

A. Let me respond by saying this: In your part of the state, Citizens' exposure is $395 billion. The rate can never go up enough in relation to that risk.

So what we're trying to do is build surplus to handle a few manageable storms and one or two [catastrophic] storms. But we can't handle, nobody could handle, the state couldn't handle, a Category 5 storm hitting right in the highest risk area.

California couldn't handle it if a major earthquake hit Los Angeles. Louisiana couldn't handle it. In Louisiana's case, the federal government moved in. Rather than see that happen [here], we have been promoting if not a federal catastrophe fund, at least a coastal cat fund.

So you can only raise rates to a point economically where homeowners can reasonably afford them. Our rates have historically been so low. And the eight storms were such a wake-up call. But we have to get rates up to where they need to be.

Q. Do other insurers use Citizens' rates as a proxy to set their own rates? Is that true?

A. Do you mean is that an accurate statement? Yes, it is true.

But that was also the intent. The intent was if you're going to get the voluntary market to come back to the state, they won't do that unless they feel the rates justify the risk.

Q. How is Citizens coping with the policies it took over after the Poe Financial Group companies failed?

A. We took on 312,000 policies on July. We hired 150 people. Within 60 days, we had the operation running smoothly.

We have not kept all those policies. It looks like 20 to 25 percent haven't renewed with us. They have gone to other companies or they have gone ``naked.'' If you have no mortgage, that's a consideration.

Last month, Citizens took on 55,000 to 60,000 new policy applications. They continue to come in at a high rate.