Fla. Board Clears Way for Rate Boost for Citizens, but Also Rate Reductions

Citizens Property Insurance Corp. of Florida will still be able to raise rates at the start of 2010, but not as much as the insurer was expecting. A vote of the governing board that oversees Citizens determined that it can raise rates at a state-mandated maximum of 10%, but it also has to cut rates up to 10% for those that models have determined warrant it.

Still, the changes to the long-frozen rates are expected to raise an additional $140.8 million from about a million policyholders to bolster the surplus of the state-run company, according to company estimates.

Citizens must now file new rate plans to the state Office of Insurance Regulation for approval.

Rate models have demonstrated that Citizens takes in far less in premiums than it needs. So the state legislature had recently voted an end to its rate freeze, allowing the rate increase of up to 10%. Now, the July 8 vote of the board provides some consumers a chance at lower payments, skewing some expectations for building Citizens? surplus.

"You?re not going to get that 10% into reserve that I think the legislature was intending to get in there," said Bob Lotane, spokesman for the National Association of Insurance and Financial Advisors of Florida. "I think there are going to be some in the legislature who will be furious about this."

Previously, lawmakers had passed HB 1495, signed into law by Gov. Charlie Crist. The bill provided Citizens with a "glide path" to actuarially sound rates ? something the state-run insurer did not have since laws were enacted several years ago to keep rates frozen. The freeze had eventually made the supposed last-resort insurer the largest homeowners insurer in the state, because its rates routinely beat insurers in the private market (BestWire, May 5, 2009).

The bill also phased out $12 billion from the Florida Hurricane Catastrophe Fund ? at a rate of about $2 billion a year for the next six years ? from what is known as the fund's TICL layer, or Temporary Increase in Coverage Limit. During a special legislative session last year, lawmakers added the TICL layer, about $12 billion, to the fund and ordered insurers doing business in the state to purchase reinsurance from the fund ? a move state officials thought would result in lower premiums for homeowners (BestWire, May 28, 2009).

According to an AMB Credit Report, Citizens wrote $1.87 billion in net direct premiums in 2008.

The top five writers of homeowners multiperil in Florida, according to 2008 A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with an 18.7% market share; Citizens Property Insurance Corp., with 17.1%; Universal P&C Insurance Co., with 7.6%; USAA Group, with 5.4%; and Tower Hill Group, with 4.7%.