Citizens Insurance reform plan could cost property owners more money

Property insurance rates across the state could shoot up much faster beginning next year under a massive new proposal being drafted in the Florida Legislature.

The proposal, released in draft form Wednesday, shows that lawmakers’ attempts to reform Citizens Property Insurance could have costly repercussions for millions of property owners.

“We’ve all seen that artificially suppressing rates is a recipe for disaster,” said Senate Banking and Insurance Committee Chair David Simmons, R-Altamonte Springs. “When you cause a private company to not be able to make a profit, what do they do? They do what we have seen. They have a flight from the state of Florida.”

Simmons disputed the claim that the proposal would lead to higher rates and said there would likely be several amendments to address any concerns.

The bill is full of enticements long-coveted by private insurers and business groups, who wield considerable political power but regularly face legislative defeats because of the pocketbook implications of their requests. The latest proposal gives insurance companies more latitude to raise premiums faster and weakens their top competition — Citizens — by forcing it to charge higher prices.

One measure in the 34-page bill is particularly telling: It changes a legal mandate that insurance in Florida be “affordable,” adding new language requiring premium prices to “reflect the risks covered.” It also mandates that Citizens charge prices that are higher than what’s available in the private market.

Because the proposal could have a multibillion dollar pocketbook impact on millions of homeowners in coming years, it is likely to face opposition from lawmakers in South Florida and the Tampa Bay area, where insurance costs are highest.

Any rate increases engendered by the bill would likely hit homeowners in 2014, right as campaigns for primary and general elections in the Legislature heat up. Also up for reelection: Gov. Rick Scott, who has said lowering the cost of living is one of his top governing principles. Scott could face former Gov. Charlie Crist, who froze Citizens’ insurance rates while in office and mandated “affordable” coverage, saving homeowners millions of dollars.

Throughout his governorship, Scott has steered clear of making specific proposals for property insurance reform, while simultaneously pushing Citizens’ board to aggressively shrink the company. The board’s actions have led to hundreds of millions of dollars in price hikes and coverage reductions. Scott has expressed concern that Citizens is undercutting the private market with its rates and could leave taxpayers liable to assessments after a once-in-a-lifetime storm.

The new proposal seeks to address that concern, along with several others. It includes the following provisions:

Citizens must charge rates that are higher than average rates in the private market.

Insurance companies may use an “insurance inflation factor” to raise premiums faster than currently allowed by law.

Insurance companies, including Citizens, may charge homeowners additional fees to help cover the cost of backup insurance.

Insurance companies can charge rates that are higher than what regulators traditionally allow, if homeowners agree to the higher charges.

It would also become more difficult to join Citizens under the new provision. Homes valued above $300,000, and properties that are not owner-occupied, would no longer be eligible for state-run insurance. Homeowners, who currently can stay in Citizens indefinitely once they qualify, would have to re-qualify on an annual basis under the bill. If a private insurer offered coverage rates within 15 percent of Citizens’ prices, the homeowner would be kicked out of Citizens.

Proponents say the proposals are aimed at steering people away from state-run insurance into the private market, where there are moderate prices that are sometimes even cheaper than Citizens’.

“Shrinking Citizens does not require a majority of Citizens customers to pay more for their insurance,” said Locke Burt, president of Security First Insurance and a former state senator. “We have proved by making over 14 million quotes of Citizens policies that tens of thousands of Citizens customers could save money by purchasing insurance in the private market.”

A Citizens spokesperson declined to comment on the draft bill, stating the insurer is reviewing the proposal.

Some of the measures in the bill came directly from Citizens, including a proposal to allow the company to use its $6.2 billion surplus to back up smaller private companies. The state-run insurers’ “clearinghouse” idea — which allows policies to be offered to the private market before they go into Citizens — was also included in the bill.

The long-running measure also includes proposals to shrink Florida’s Hurricane Catastrophe Fund and allows insurers to raise rates by up to 25 percent without a public hearing. The current threshold is 15 percent.

The decision to stuff so many controversial proposals into a single bill could be risky, as property insurance has proven to be one of the most politically dicey issues in recent years.

Leaders of the Democratic caucus in the House and Senate each said last week that Democrats would be skeptical of any proposals to raise rates on homeowners. In the 40-member Senate, where there are 14 Democrats, any insurance proposal will face a tough task of corralling a 21-vote majority. Coalitions of Democrats and South Florida Republicans have joined together in recent years to vote against insurance measures seen as anti-consumer.

That means only six Republican Senators would have to break ranks to kill the current proposal.

Citizens has 1.3 million policyholders, making up about 23 percent of the market in Florida. As the largest insurer in the state, Citizens covers a large portion of Florida’s 12 million registered voters, including millions of residents in South Florida and Tampa Bay.

Miami Republicans have already filed a bill that is in direct conflict with the latest proposal. That bill would prohibit Citizens from raising rates more than 10 percent per year.

In Miami-Dade County, the average standard homeowner’s policy through Citizens costs $3,300, taking up a 5-percent chunk of the average household budget. In the Tampa Bay area, homeowners’ insurance costs also eat up large portions of families’ earnings.

Some critics of the draft bill say homeowners have suffered enough in recent years, as Citizens has slashed coverage and inspected some 350,000 homes, sparking premium increases of nearly $200 million.

“I would never support that proposal,” said Rep. Mike Fasano, R-New Port Richey, naming several of his Republican colleagues in the Senate he believes feel the same way. “I feel confident that those senators will step up to the plate and stop any further rate hikes.”

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