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State-run insurer needs $950M

Claims from Wilma leave Citizens Property deeper in the hole, and it could cost you 11 percent more on your bill . . . no matter your insurer.

By JONI JAMES
Published November 10, 2005

TALLAHASSEE - Florida property owners, hold on to your wallets.

Damage claims from Hurricane Wilma mean that for the second time in two years, property insurance policyholders across the state are expected to pay for a deficit in the state-run insurer of last resort.

The anticipated cost this time? An estimated $950-million, or an 11 percent assessment on every property insurance premium. For a homeowner paying $1,500 in annual insurance premiums, the assessment would add $165 to their 2006 bill.

The bad news from Citizens Property Insurance Corp., delivered Wednesday in a state legislative committee, comes just three months after the insurer voted to pass on another $516-million assessment to help pay claims from the 2004 hurricanes. For a Florida policyholder with a $1,500 premium, that assessment means a 2005 insurance bill that is roughly 7 percent or $105 higher.

Citizens' latest revelation prompted Gov. Jeb Bush to add his support to a proposal by Chief Financial Officer Tom Gallagher that would pay off Citizens' deficits by using sales tax revenues generated from hurricane reconstruction efforts. That could at least partially eliminate the need for a major assessment.

Legislative leaders, who rejected the sales tax idea during the 2005 legislative session, aren't ruling it out so quickly now.

Wednesday's news was yet another sign of the shaky standing of the state's insurance market.

Proud just a year ago that the market was largely intact after four hurricanes, state leaders now say another active hurricane season is causing it to unravel. One out of four homeowners is now forced to buy coverage from Citizens because private insurers are scaling back their exposure in Florida.

The crisis comes as scrutiny of Citizens' operation was already at an all-time high after allegations that a former executive received kickbacks from vendors in exchange for awarding lucrative claims-processing contracts during last year's hurricanes.

Citizens added a new wrinkle to the insurance problem Wednesday, saying the $516-million assessment being charged this year appears to be too little to fully cover Citizens' costs from the 2004 storms. A new estimate indicates higher construction materials and labor costs - caused by market demand - will increase 2004 windstorm claims an additional $326-million. That cost has been factored into the anticipated $950-million deficit for the 2005 storms.

But no one will feel the crunch quite as much as 800,000 Citizens policyholders, who face another round of double-digit premium hikes.

Citizens' staff told the Senate Banking and Insurance Committee that they plan a two-part process aimed at raising Citizens' rates. Next week, Citizens' board will consider going forward with an immediate double-digit rate increase, followed next year by the balance of a hike that, for some homeowners, will more than double their rates.

For years, the company has set its rate based on those charged by the 20 largest private companies in the market, not on an analysis of its own liability. In reality, the insurer's exposure is much worse than any private company because of its legislative mandate to offer insurance wherever homeowners can't find coverage. The result is heavy concentration in coastal regions and the Tampa Bay area, where sinkhole claims have caused costs to soar.

For Citizens' customers buying traditional home insurance policies, the two-step hike could result in insurance costs that are an average of 37 percent higher by mid 2006; for windstorm policy holders, an average 80.2-percent higher.

The numbers stunned some lawmakers.

"I have people in my district who have seen (Citizens) premiums rise greatly over the last few years, from $600-$700 a year to close to $3,000 and beyond that," said Sen. Mike Fasano, R-New Port Richey. "Can you give these people a bottom line, what they will see in the Tampa Bay area?"

"Because of the sinkhole payments, in Pasco in particular, you're looking at 100-percent-plus increases on top of what they're paying," answered Citizens executive director Bob Ricker.

The initial rate hike, expected to be approved next week by Citizens' board, will mean an average of 15.4 percent for homeowner's policies and 16.2 percent for windstorm customers. In west-central Florida, homeowners in coastal Citrus County could face the highest increase initially, nearly 24 percent. And owners of mobile homes in Citrus, Hernando, Hillsborough, Pasco and Pinellas counties will all see a 22 percent hike.

The balance of the proposed hike will be subject to approval by the state Office of Insurance Regulation, a process that will involve public hearings and take several months.

Not all are bothered by the escalating premiums.

Lawmakers from areas where few Citizens customers live said it's only fair. They chastised Citizens staff for not moving faster to implement rates that are sound.

"You've now assessed a billion and a half dollars over two years and there is a question about whether you have the right rates?" said Sen. J.D. Alexander, R-Lake Wales. "The people of Florida who got no benefit from you writing these policies other than general economic benefit in the state are going to be writing a check for (11 percent) more for (storms from) this year and (7 percent) for last year. And we're just supposed to pray we don't have more storms?"

Only one of Citizens' policy offerings - the high-risk pool that covers wind damage - is expected to face a deficit after Hurricane Wilma. The insurer estimates the fund could face from $626-million to $1.47-billion in claims payouts. In calculating its likely assessment before lawmakers Wednesday, Citizens used an average of the projections, $1.16-billion. The fund had only $60-million available to pay claims before Hurricane Wilma hit.

Citizens' two other insurance lines - basic homeowner's insurance and insurance for commercial residential buildings - are expected to face Wilma claims of $59.5-million and $179.2-million, respectively, but both those pools have sufficient reserves to cover the cost.

Times staff writer Steve Bousquet contributed to this report. Joni James can be reached at jjames@sptimes.com or 850 224-7263.

[Last modified November 10, 2005, 01:21:17]