Florida's troubled Citizens Insurance recommends a 12 percent rate increase on most primary residences

With the state-backed Citizens Property Insurance Corp. continuing to see massive growth, regulators Thursday took up a proposal that would lead to double-digit rate increases for Citizens customers across Florida.

The proposed increases would vary based on factors such as types of policies. But Brian Donovan, the chief actuary for Citizens, said during a hearing held by the Florida Office of Insurance Regulation that Citizens is recommending 12 percent increases for all homes that are primary residences and have what are known as multi-peril policies — the most-common type of coverage.

Increases could be dramatically higher for homes that are not primary residences. A new state law allows increases up to 50 percent for those properties.

"We take asking for a rate increase very seriously," Citizens President and CEO Tim Cerio said during the hearing. "(For) homeowners' insurance consumers, it's a very difficult time right now."

The Office of Insurance Regulation held a 2 ½-hour hearing on the proposal, with the office's actuaries asking numerous detailed questions. Regulators typically take weeks to decide whether to approve such proposals.

The hearing came amid a tumultuous time in the property-insurance industry. Private insurers during the past two years have dropped hundreds of thousands of policies, sought large rate increases and, in some cases, gone insolvent because of financial troubles.

Part of the fallout is that homeowners have poured into Citizens, which was created as an insurer of last resort. Citizens has seen its number of policies more than double during the past two years to 1.308 million as of last week. Cerio said the number could climb to 1.7 million by the end of the year.

State leaders have long sought to shift policies out of Citizens into the private market, at least in part because of financial risks if the state gets hit by a major hurricane or multiple hurricanes. Cerio said Thursday that Citizens has seen its reserves drop by 33 percent as additional policies have driven up hurricane losses.

Citizens and insurance-industry officials complain that Citizens often charges lower rates than private companies, effectively creating an incentive for homeowners to get coverage from the state-backed insurer. State law limits annual rate increases for Citizens, with the cap this year at 12 percent for homes that are primary residences.

But lawmakers during a December special legislative session took a series of steps aimed at trying to push policies back into the private market, including allowing increases up to 50 percent for homes that are not primary residences.

While Citizens officials and private insurers contend that Citizens' rates need to be higher, residents in some areas of the state, such as the Florida Keys, have few, if any, other choices for coverage.

Two leaders of the group Fair Insurance Rates in Monroe appeared at Thursday's hearing and urged regulators to reject rate increases in Monroe County, which includes the Keys.

Mel Montagne, president of the group and an insurance agent, said Citizens has received a "gross profit" from Monroe County over the years because it has taken in more in premiums than it has paid out in claims.

Joe Walsh, a member of the group's board, pointed to the lack of competition in the Keys.

"The Citizens rate is the rate. And so if Citizens raises rates, rates go up," Walsh said.

State Insurance Commissioner Michael Yaworsky said the best way to reduce the number of Citizens policies is through recovery of the private market. But he said that will take time and acknowledged the difficulties caused by increased rates.

"I think everyone in this room … has probably experienced rate increase in their property rates over time," Yaworsky said. "It is not fun. It is painful. It's not fun to approve those rates, but we've all had to make the best decisions we can as we go forward."

— News Service Assignment Manager Tom Urban contributed to this report.