For the first time in four years, Citizens Property Insurance wants to lower rates for nearly 70 percent of its customers while everyone else —mostly South Florida condominium owners and homeowners in coastal areas — will see another year of increases.
The rate changes were recommended Wednesday at the quarterly meeting of Citizens’ Board of Governors and now must go before the Office of Insurance Regulation for final approval.
Base rates vary greatly from policy to policy, but Citizens is proposing average rate cuts of about 4.3 percent for Miami-Dade County homeowners with “multi-peril” policies — ones that include protection against theft, wind and fire. Similar policies in Broward will see rates drop an average of 7.3 percent; Monroe County homeowners will see rates rise 2.6 percent.
For condominium owners in South Florida, however, the rate hikes will continue with average increases of 6.4 percent (Miami Dade), 3.2 percent (Broward) and 1.4 percent (Monroe).
Rate increases will also occur for many coastal area homeowners who have wind-only policies held by Citizens. The average increase for wind-only policies in Broward County will be about 5.3 percent and 7.9 percent in Monroe County. It will remain the same for Miami Dade policyholders.
The lower rates were made possible primarily because of a decline in re-insurance costs and the fact that the state has not faced a hurricane in eight years, Citizens officials said.
“It’s important to recognize that for the first time in many years, Citizens has achieved actuarially sound rates for the multi-peril groups of business,’’ said John Rollins, chief risk officer for Citizens, at the board meeting Wednesday.
State law requires that Citizens rates be what regulators determine are actuarially sound, meaning the cost of the policy is based on the risk. Citizens is barred from increasing its customer rates more than 10 percent a year.
Homeowners who see their rates rise have rates that regulators have determined are below what they should be charged compared to the risk. Condo units, for example, are being charged an average of 74 percent less than the risk associated with their windstorm policies, Citizens data shows. But no condo owner will be charged more than 10 percent as required by law.
If state regulators approve the board’s recommendation, the statewide average decrease for homeowners will be 6 percent and for renters, 22 percent. Condominium owners will see their rates rise an average of 9 percent — with half of them getting the maximum 10 percent hike. And commercial property owners will see average increases of about 8 percent.
The proposal to lower rates at Citizens would be the first time in four years the state-run insurer of last resort has sought a reduction and comes in an election year when voters are keen on pocketbook issues.
Jay Neal, president of the Florida Association for Insurance Reform, a Broward-based coalition of insurance and development companies, said that in the past, when rates were shown to be higher than needed to be actuarially sound, “they would just leave it the way it was.”
But Neal said he was not prepared to blame it on election-year politics.
The Legislature allowed Citizens to raise its rates up to 10 percent a year at the same time it increased incentives to private companies to takeover Citizens policies. The strategy worked and as of May 31, Citizens was down to 928,546 policies, most of which are in six counties — Miami-Dade, Pinellas, Broward, Hillsborough, Palm Beach and Pasco — from a high of 1.5 million policies two years ago.
As the company shed policies, it used the price differential to discourage new customers from choosing Citizens when policies were comparable.
In a statement earlier this week, Chris Gardner, chairman of the Citizens board, said the board had no choice but to pass on the savings from the low re-insurance costs and hurricane free years.
“We’ve done nothing more than rely upon the same data we use every year to determine rates and this year that data indicates a decrease is in order for most of our policyholders,” he said.
Tom Lynch, a member of the board of governors, expressed concern that the rate decrease could lead to people choosing Citizens policies over the private carriers, especially if a hurricane hits Florida again.
“In 2007, our rates were the cheapest in the market,” he said Wednesday. “My concern is how fast can we recover if the market changes.”
He suggested that current policyholders be given a rate reduction while new policyholders pay current rates.
Rollins called it “a very valid concern,” but he didn’t think Citizens had the authority to charge two sets of rates for the same policy.
Rep. Frank Artiles, R-Miami, a frequent critic of Citizens, said the decision to raise rates hurts homeowners who have to rely on Citizens as their insurer of last resort.
“Citizens board of Governors needs to stop all rate increases until they have controlled their costs,” he said in a statement. “Citizens and the previous boards have spent over 1 billion dollars in attorney fees [defense and plaintiff] in the last 10 years.”
The Office of Insurance Regulation sets Citizens rates but uses the recommendations provided by Citizens and its board of directors to guide its decision.
Also Wednesday, the board recommended keeping rates for sinkhole claims steady except in Hernando County, where rates will rise 10 percent.
Citizens President and CEO Barry Gilway also announced Wednesday that the company was delaying a plan to require homeowners with existing policies to opt-out of having their policies taken over by private companies using an electronic clearinghouse.
Citizens had planned to shift policies into the clearinghouse August or September, but will now delay the start of that effort until November, at the request of the contractor, Bolt Solutions Inc.