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Citizens: Use state fund to pay catastrophe claims

The state-run insurer suggests the measure as a way to ease the strain while maintaining coverage after storms.

By JEFF HARRINGTON
Published October 6, 2005

Citizens Property Insurance has a dramatic suggestion to help it shed thousands of homeowners policies forced into the agency: put the burden of paying catastrophe claims entirely on the state's hurricane catastrophe fund.

Such a fund could function much like the Federal Emergency Management Agency's National Flood Insurance Program, Citizens executive director Bob Ricker said Wednesday.

The catastrophe, or CAT, fund is funded by insurers that do business in Florida. It was set up to provide a layer of coverage to pay off claims from catastrophes after insurers pay billions of dollars out of their own pockets.

In 2004, insurance companies had to rack up $4.5-billion in combined losses from a single storm to get money from the CAT fund. As a result, most insurers received little or no reimbursement after paying claims from the four 2004 storms, even though combined losses from the season exceeded $20-billion.

Under the idea Citizens is floating to legislators, the CAT fund would be triggered automatically during a catastrophe with no threshold. In other words, insurers would cover homes for perils such as fire and theft, but be able to tap the CAT fund immediately after a catastrophe.

Citizens by law must insure property owners who cannot find coverage in the open market. The agency would still insure many older homes and those in sinkhole-prone areas that are shunned by insurers. But if it has its way, Citizens would no longer be a receptacle for hundreds of thousands of policies shed by private insurance companies simply to reduce their exposure to a catastrophe.

Ricker pitched his CAT fund proposal Wednesday to House Insurance Committee chairman Dennis Ross, R-Lakeland, who said he was willing to consider the idea.

"I don't have a definitive opinion about it, but I do have an interest in learning more about it," Ross said.

As Citizens struggles with the burden of an ever-increasing number of policyholders, Ross said "we have to look at a very innovative way to bring voluntary market carriers into the (insurance) market without having to raise rates."

During a meeting with the editorial board of the St. Petersburg Times, Ricker and Citizens board chairman Bruce Douglas also pushed their top legislative priority: fixing a sinkhole crisis that has affected the bay area more than anywhere else in the state.

Since 2001, the number of bay area policies forced into Citizens has expanded from about 1,000 to more than 150,000, largely because insurers refused to write policies in neighborhoods prone to sinkholes. Under state law, Citizens policyholders are supposed to pay more than the market average for insurance.

Last year, legislators tightened the language defining a sinkhole and took other steps to try to move such policies back in the private market. It wasn't enough, Ricker said.

Ideally, Ricker and Douglas said, legislators should tighten sinkhole language more to reduce the likelihood of suits and force homeowners to pay half the cost of an engineering study when sinkhole damage is suspected. They also said legislators should consider creating coverage within the state's catastrophe fund for sinkhole exposure.

Staff writer Louis Hau contributed to this story. Jeff Harrington can be reached at harrington@sptimes.com or 727 893-8242.

[Last modified October 6, 2005, 01:13:15]