In the next month, almost 400,000 people whose homes are covered by the state-run Citizens Property Insurance Corp. will get a letter in the mail from another insurance company taking over their homeowners’ insurance coverage by Nov. 5.
Policyholders will have two options:
Say no, and remain with Citizens, taking a chance that their options will become even more limited beginning in January, when a $44.9 million clearinghouse comes online to allow insurance agents in the private market to handpick Citizens policies.
Or say yes, accepting the coverage from the so-called “takeout” company, one of 10 smaller carriers. Unlike Citizens, those companies have the right to raise insurance premiums by unlimited amounts when the policies come up for renewal.
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It’s all part of the aggressive and controversial push by Gov. Rick Scott and the Florida Legislature to shed Citizens Property Insurance of its 1.2 million state-subsidized policies. Under current law, if Citizens falls short of the cash it needs to pay its claims after a massive storm, policyholders of other lines of insurance and state taxpayers will be assessed fees to foot the bill.
But as Citizens shifts policies to the private market, the bottom line for homeowners is that costs will rise. Private companies don’t face the same rate caps as those imposed on Citizens, and they don’t benefit from the taxpayer-backed system.
Under legislation passed by lawmakers last spring, Citizens policyholders will be prohibited from renewing their policies if they receive a comparable private-market offer that is equal to or less than their Citizens renewal premium.
Beginning Jan. 1, homeowners applying for Citizens policies for the first time will be required to go with the private carrier if it offers coverage that is within 15 percent of Citizens’ rates. Current Citizens customers will be treated differently. Private carriers may offer them less coverage, but it must not be more expensive than their current policy.
That leaves policyholders who receive a takeout offer this month in a quandary: What incentive is there to shift to the new company when you might have more choices later?
“Arguably, takeout recipients have more choice,” said Citizens spokesman Michael Peltier. “They can try out the private takeout carrier, which may offer better coverage, and still be eligible for Citizens until their renewal comes up.”
But homeowners who turn down a takeout offer in November might not be able to keep their Citizens insurance much longer anyway. “In theory, the more close the Citizens rate is to the market rate, the more likely that multiple offers are forthcoming,” Peltier said.
The centerpiece of the new law is a clearinghouse that will be used by insurance agents representing private carriers to identify potential customers.
Policyholders who receive an offer from a takeout company have 30 days after the private company takes over their policy to come back to Citizens at the same rate they paid before, Peltier said. But policyholders who receive an offer of coverage through the clearinghouse will have only 48 hours to shop around.
The goal of the clearinghouse is to make sure that Citizens doesn’t take on new customers as it sheds old ones.
Last month, the Citizens board approved a $21.7 million, five-year contract with Bolt Solutions of Connecticut to design and operate the software for the clearinghouse system. The contract could be extended another five years, with the value not to exceed $44.9 million, and the cost is contingent on the number of policies actually transferred to private carriers.
“This is like the iPhone for insurance in Florida,” said board member John Rollins, before the vote. “It’s going to really transform everything about the way a consumer thinks about shopping for home insurance.”
But state Rep. Frank Artiles, R-Miami, a frequent critic of Citizens, said that while the clearinghouse concept offers some consumer protections, it is designed to benefit insurers and insurance agents over customers.
“My take on the clearinghouse is that it was built to protect agents,” he said, referring to the agents who sell auto, life and personal-property coverage for national companies but do not sell homeowners insurance in Florida. “Your property gets put into the clearinghouse, and it gets shopped around for anybody who is writing insurance so they can keep their clients.”
Under a compromise reached with the Miami-Dade delegation, Citizens policyholders who are forced to take a policy from a private carrier in the clearinghouse will see their premium increases capped at 10 percent for three years and have the option to return to Citizens.
Artiles advises Citizens customers to do their homework.
“Ask for a copy of the policy, and ask for the differences between it and your Citizens policy,” he said.
For example, private companies have the right to repair damage to a home instead of paying for replacement coverage. Hidden in some policies, however, is a statement that if they hire a third-party contractor to do the work, the carrier is not responsible for the work, Artiles said.
“I have a problem with that,” he said. “If you want the right to repair, then you have to take full responsibility for the subcontractor or vendor who works for you.”
While the clearinghouse will not be available for consumers to comparison-shop, it will be available for agents. Meanwhile, the Office of Insurance Regulation has a website that offers information about each takeout company at www.floir.com/Sections/PandC/TakeoutCompanies.aspx
Artiles considers the website difficult to navigate and understand. He advises: “If you have to make a decision with your eyes closed on a takeout company, stay with Citizens.”