Florida Legislation Could Change Citizens Assessment Procedure

Florida lawmakers are floating legislation that would change the way Citizens Property Insurance Corp. issues deficit assessments, including saving many private insurers from shelling out to cover a large bill from Citizens during catastrophes.

The bill would streamline the three layers in which the state's insurer of last resort currently issues assessments used to cover deficits. It would largely get rid of what is known as regular assessments, which are currently levied on nearly all property/casualty policies in the state, but not levied on Citizens' policies, according to the bill. The bill, H.B. 1127, would reduce regular assessments on coastal insurers to 2% of premiums from 6% and lengthen the time insurers have to pay that bill.

Assessments are part of the way Citizens funds its operations. According to house analysis of the bill, Citizens currently has $12.7 billion in resources to pay claims. The analysis estimates that a 1-in-100 year hurricane would cost about $23.2 billion. The difference would be covered by assessments to Citizens' policyholders and the bulk of property/casualty policyholders in the state.

If the insurer runs out of money, it currently issues assessments in three ways: first to its own customers on future policy premiums; then by a regular assessment that can be up to 6% of a policy premium on nearly all property/casualty policies in the state; then by emergency assessments on both Citizens' and nearly all other property/casualty policies up to 10% of the annual premium.

Regular assessments can significantly impact private insurers' cash stores, said Lynne McChristian, Florida representative for the Insurance Information Institute.

"One of the problems the insurance companies had with that is ... they had to pay that within 30 days," McChristian said. "That is, for some, unreasonable to be able to turn that cash over in that short of a time frame."

Even though insurance companies can recoup the funds from their policyholders that's "quite another burden to take when you are already paying claims from a catastrophic event on your own," McChristian said. That leaves insurers trying to raise or borrow funds at the last minute, said Sam Miller, executive vice president of the Florida Insurance Council.

Getting rid of the regular assessments leaves Citizens skipping to the emergency option, which gives insurers up to 30 years to pay their tab, according to the III. That means insurers can get the money from their policyholders in their monthly premium payments and then remit the funds to Citizens, Miller said.

The bill was voted out of the Florida House of Representatives last week and is current awaiting action in the Florida Senate. The bill has gathered support among insurance trade organizations. Miller said his group supports it because it reduces private insurers' liability to Citizens. Jack McDermott, spokesman for the Florida Office of Insurance Regulation, said the OIR supports the bill because "it will attract investment."

Citizens was formed in 2002 by combining two residual-market associations and was supposed to be the insurer of last resort (Best's News Service, Dec. 11, 2011). The company has taken recent steps to shrink their share of the Florida market and cut $1.5 billion from its exposure. The company has previously told Best's News Service they want to get down to 800,000 policies from their current 1.5 million.

The top five writers of homeowners multiperil in Florida in 2010, according to BestLink, were: Citizens Property Insurance Corp., with market share of 15.3%; State Farm Group, with 12.9%; Universal Insurance Holdings Group, with 7.9%; Tower Hill Group, with 4.7%; and USAA Group, with 4.6%.

(By Michael Buck, senior associate editor, BestWeek: [email protected])