Most of us say "thanks" without thinking.
Dec. 05--Florida's state-run property insurer Citizens would spend virtually all of its projected money left over after expenses in 2013 -- $350 million -- on a controversial plan it pitched to a legislative panel Tuesday.
Opponents likened it to a casino where the losers are ratepayers. Citizens president Barry Gilway painted a much different picture, saying that giving potentially forgivable loans to private insurers to take Citizens customers reflects the company's commitment to look at "every possible idea" to shrink its risk exposure.
"There's a staggering benefit," Gilway said.
Companies would get low-interest, 20-year loans that could be forgiven 20 percent each year a named storm makes landfall in Florida. Private insurers could get up to $50 million each and would pledge to keep Citizens customers 10 years and not raise rates more than 10 percent for three years.
Potentially, the plan could see companies take out 300,000 customers or more off the Citizens rolls of almost 1.5 million. Skeptics say it's not needed: Existing takeout programs without the loans are already giving nearly 400,000 Citizens customers a chance to move to a new carrier in late 2012 and early 2013
The House insurance and banking subcommittee heard the proposal Tuesday. House Speaker Will Weatherford earlier advised Citizens not to rush the plan without legislative input.
"We are in the middle of a legislative meeting gathering facts about Citizens' proposed surplus (note) program," Weatherford said Tuesday. "Additionally, Citizens does not have the results of the reports they have commissioned regarding this program. We currently do not have enough information to know whether the proposed program is the answer for Citizens' depopulation efforts."
At Tuesday's meeting, Rep. Bill Hager, R-Boca Raton, said, "I think we need to do everything in our power to get this company to a reasonable size."
Others not on the subcommittee were blasting the plan before it started. Rep. Mike Fasano, R-New Port Richey, called the plan a "swindle" that shouldn't happen at all, much less without consideration of the full legislature.
The Citizens board meets Dec. 14 but two outside firms are studying the proposal and one of their reports probably won't be ready until January, Gilway said. Some board members have pushed for speedy approval of the plan to get it going before the next hurricane season.
The move would spend ratepayers' money that could otherwise be put into the company's $6 billion surplus to pay claims, reducing the need for future assessments or purchases of expensive reinsurance from private offshore interests.
Citizens plans to increase by about 20 percent what it spends on private reinsurance to $327 million in 2013, budget records show. Two years ago Citizens spent no money at all on private reinsurance. Coverage now in place means reinsurers would pay $1.5 billion if unusually bad storms hit, but much of it doesn't kick in unless losses exceed $6 billion.
Also, the reinsurance only covers temporary periods such as one or two years. If it isn't used -- and it hasn't been the last two years -- the money simply goes into the pockets of brokers and reinsurers such as Wall Street titan Goldman Sachs. In contrast, the surplus can keep growing and is available year after year to pay claims.
On Tuesday, Rep. Frank Artiles, R-Miami, questioned why Citizens reinsurance purchases are not "a waste of money." Citizens officials warned of possible assessments to all Florida insurance customers if a once-in-100-years storm --worse than Andrew or anything in modern Florida history -- exhausts Citizens reserves. But the loan plan doesn't eliminate all risk to the state because a state guarantee fund would have to cover claims if private insurers taking Citizens customers also go out of business after such a rare storm, Artiles said.
In 2012 the Citizens surplus grew by close to $500 million, but plans under consideration including the loan incentive plan would eat up virtually all net income in 2013. Citizens is the state's largest property insurer with 1.5 million customers, including 141,000 in Palm Beach County.
"The reason they tried to push this through without legislative approval is because it doesn't pass the smell test," said Rep. Darryl Rouson, D-St. Petersburg. "We need to turn on the lights at this corporate casino and see that $350 million to pay claims is much better than letting it ride for three years and then watching these customers be forced back into our insurer of last resort."
(c)2012 The Palm Beach Post (West Palm Beach, Fla.)
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