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Letter to the editor

Citizens delays surcharge vote

In August, the state-run insurer's new board will face tough decisions about covering a $515-million shortfall.

By JEFF HARRINGTON
Published June 9, 2005

Property owners won't be socked soon by a special surcharge to help the state-run Citizens Property Insurance Co. pay hurricane claims from 2004.

But dealing with the surcharge and a looming deficit will be a top priority of Citizens' new board of directors which takes office in August - during the height of the hurricane season.

Citizens, the state-run compnay that insures Floridians who cannot find property coverage on the open market, was hit harder than any other insurer by hurricanes Charley, Frances, Ivan and Jeanne.

It needs about $515-million to replenish the deficit in its high-risk account and, under state law, Citizens can assess all property insurance holders to cover the shortfall.

For months, it has been weighing whether to assess an average surcharge of about 7 percent.

For a property owner with annual premiums of $750, the proposed surcharge translates to about $50 extra. For someone paying $1,300 in premiums, it means about a $90 surcharge. Last year, the average Florida homeowners' policy was $1,149.

The board had hoped the state Legislature would dedicate some surplus sales tax revenue toward the cause, but that didn't happen during the legislative session that ended last month.

During a brief interlude in a three-hour meeting in Jacksonville Wednesday, Citizens' board again brushed off the surcharge question on the recommendation of Citizens' chief financial officer Jessica Buss.

Buss said that the insurer has plenty of cash on hand to pay claims - for now - and that a new board could deal with the financial squeeze later.

The board, without taking any formal vote, agreed.

Citizens spokesman Justin Glover said it isn't a matter of passing the buck. The board felt its successors should make a decision "of such far-reaching importance" because the new board would manage the aftermath, he said.

Under a law recently signed by Gov. Jeb Bush, the makeup of Citizens' board is being altered to give more input to more politicians. Florida Chief Financial Officer Tom Gallagher used to appoint the board. The new setup gives members of the Legislature, as well as the Cabinet, the authority to appoint some board members.

Glover said Citizens is running a positive cash flow of about $170-million, which is enough cushion to pay for claims in the short term. That's because of higher premiums flowing in as Citizens' policyholder base continues to expand. Citizens also can levy bond funds to stem its cash flow, which the insurer has done routinely since 1999.

Ernst & Young auditors previously projected that Citizens will pay out $2.4-billion toward hurricane damage claims and related expenses. About $1.8-billion of that is in its high-risk account, which faces the shortage.

A statewide surcharge would be on top of hefty premium increases insurers across the state have imposed or are planning.

Many Citizens' policyholders already are grappling with double-digit rate increases on their bills. This year, state regulators approved Citizens' filing to raise rates 23 percent on average statewide.

In separate action, Citizens reported:

--It has returned more than 200,000 policies to the private market this year, enticing insurers to take high-risk policies with the promise of a bonus tied to premiums.

Citizens' overall policy count has continued to swell, however, because other insurers continue to drop policyholders, forcing them into Citizens. As of the end of May, Citizens had about 810,000 policies, second in the state only to State Farm Insurance.

--Raymond James & Associates has been named as investment adviser to the company, on a monthly retainer for up to $10,000.

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

[Last modified June 9, 2005, 01:18:10]