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Property owners may bail Citizens

To cover Florida's insurer of last resort after last hurricane season, all property owners face a 7 percent assessment on their premiums.

By JEFF HARRINGTON
Published March 24, 2005

The price tag for recovering from last year's hurricanes may have just risen for property owners statewide.

Short of a legislative fix, property owners face an average one-time assessment of 7 percent on their insurance premiums to help Citizens Property Insurance pay $2.6-billion in hurricane claims.

Citizens, which insures those who cannot find property coverage in the open market, was among those hardest-hit by the storms. The company has ballooned into the second-largest insurer in Florida as private insurers avoid hurricane-prone and sinkhole-prone properties.

In February, Citizens projected a deficit of about $400-million in its high-risk account and acknowledged for the first time that it would likely need to recoup the money through an assessment on all property owners.

However, Citizens' executives told a task force Wednesday that the account deficit is closer to $525-million based on a recent audit. The estimate will be reviewed by the company's independent auditor, Ernst & Young by mid April, but state regulators expect it to hold up.

Under state law, all property owners can be assessed to shore up Citizens' finances.

"That's a 6.99 percent assessment, should that be confirmed by auditors," Citizens spokesman Justin Glover said.

For a homeowner with annual premiums of $750, that translates to about a $50 surcharge; for someone paying $1,300 in premiums to Citizens, it means a $90 surcharge. The totals are $10 to $20 more than what Citizens had forecast a month ago.

Whether there will be a surcharge hinges on what state legislators do this session.

Instead of an assessment, Florida Chief Financial Officer Tom Gallagher is lobbying legislators to fund Citizens' shortfall with sales tax revenue generated by the hurricanes. The state has estimated it will collect an extra $750-million in sales tax revenue through June 2006 because of new construction in damaged parts of the state and other hurricane-related commerce.

Gov. Jeb Bush and House and Senate leaders have neither embraced nor rejected the proposal.

Bob Lotane, a spokesman in Gallagher's office, said it was difficult to get traction on the issue until Citizens reported on its deficit.

"We wanted to get a number we could hang our hat on, and that's what that number is today," Lotane added.

Citizens entered the 2004 season with what it thought was a moderately healthy $1.3-billion surplus in its high-risk account, which includes most properties susceptible to wind damage. Those funds were more than wiped out by hurricanes Charley, Frances, Ivan and Jeanne. About $1.8-billion of Citizens' anticipated $2.6-billion in losses were because of damaged properties in the high-risk account.

In the initial months after the hurricanes, Citizens was hammered by Gallagher and other regulators for slow response times and mistakes in the field and front office. The complaints triggered the creation of a task force, which is studying ways to overhaul the insurer.

On Wednesday, Citizens told the task force it has closed 95 percent of its 118,000 hurricane claims.

Any assessment would only help reimburse victims of last year's hurricanes. It does little to prepare the insurer for the hurricane season that officially begins in 69 days.

What if the 2005 season includes a major storm or two that depletes Citizens again?

"We can issue an emergency assessment if there's a cash flow problem," Glover said.

Jeff Harrington can be reached at harrington@sptimes.com or 813 226-3407.

[Last modified March 24, 2005, 01:19:16]