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Citizens asks for huge hike

The state-run insurer seeks another jump that would make an average homeowners policy go up 45 percent.

Published December 16, 2005

The board of Florida's insurer of last resort agreed Thursday to seek a second extraordinary rate increase in two months, all but assuring that most policyholders with Citizens Property Insurance Corp. will see sharp, double-digit increases in their premiums by mid 2006.

Combined, the November and December rate proposals mean Citizens' windstorm-only rates will climb an average of 79.8 percent for Florida homeowners, while traditional homeowners' policies will grow 45 percent, and rates for mobile homes will rise 22.6 percent. The new rates require approval of state regulators.

"Don't they realize there are people who could literally lose their house because of the costs?" said Judy Catalano, a 57-year-old Dunedin woman who already has watched the premium for her Citizens' homeowner policy grow $1,200 in 2005. "I can struggle through it, but not everyone can."

One out of five homeowners in Florida have their policy with Citizens, making it second in size only to State Farm. In the Tampa Bay area, the concentration of policies has increased exponentially in recent years as insurers have left the market due to the growing number of sinkhole claims.

But Citizens board members, meeting in Ponte Vedra Beach, said they had no choice under state law.

Since November 2004, Florida Insurance Commissioner Kevin McCarty has pushed the state-backed insurer to adopt rates based on actuarial studies required by the Florida Legislature. Thursday's action marks the first time Citizens will fully comply with the law.

Until now, Citizens has merely set its rates higher than the top 20 private companies in each market. That scheme failed to fully weigh the company's considerable exposure along the coastlines and sinkhole-prone areas.

There's little expectation that McCarty, whose staff has closely monitored Citizens' actuarial study, will reject the new rates.

"I can't find a way to get around the mandate (to be financially sound) without breaching our fiduciary duty," lamented Citizens board member Gloria Fletcher of Gainesville.

Board member Julio Rebull Jr. of Miami said, "Affordability is increasingly an issue. I hope there is something we can do to work with people with fixed incomes."

The increases would come on top of another burden that all the state's property insurance policyholders are being forced to bear. Back-to-back active hurricane seasons exhausted Citizens' reserves in 2004 and 2005. The result is that both this year and next, all Florida property insurance policyholders will be assessed a special surcharge to make up the combined deficit, which is expected to reach $1.5-billion.

"Right now, there probably is a danger that some people who are fairly poor in South Florida are going to have trouble paying these premiums," said Sam Miller of the Florida Insurance Council. "We already provide assistance for people who can't pay their electric bill or their phone bill. Maybe we need to start looking at doing the same for insurance."

The crisis comes as Citizens' operation is already under scrutiny after allegations that a former executive at the company received kickbacks from vendors in exchange for awarding lucrative claims-processing contracts during last year's hurricanes. A federal and state criminal investigation is under way, and state lawmakers of both parties have questioned how much of Citizens' financial crisis might have to do as much with bad management as hurricanes.

The company has said its per-policy administrative charges remain significantly lower than those of private companies.

On Thursday, state Sen. Ron Klein, D-Delray Beach, urged the Citizens board to postpone its vote until at least March, when another investigation by the Legislature's auditor general in the company is due to be delivered.

"It would provide a road map . . . to make sure the (Citizens) house is in order," said Klein, who is seeking to unseat U.S. Rep. Clay Shaw, R-Fort Lauderdale, in the 2006 election.

Klein failed, however. And there is no immediate relief in sight.

State lawmakers have expressed concern about rising insurance rates, and Senate President Tom Lee, R-Valrico, has called it the biggest challenge for the regular session that starts in March. But there is no consensus on an action plan that would guarantee lower rates.

House Democrats have proposed expanding Citizens' windstorm pool to all windstorm policies statewide in hopes of diversifying the risk. But critics say that could further compound the problem because the windstorm arena wouldn't include any private insurer capital.

Two New Port Richey Republicans, Sen. Mike Fasano and Rep. John Legg, have proposed making it harder to pursue a sinkhole claim after it is denied by an insurer in an effort they hope would deter frivolous claims. But its future is unclear as it faces stiff opposition from trial attorneys and consumer advocates.

Chief Financial Officer Tom Gallagher, a former state insurance commissioner, last month unveiled a proposal for shoring up the state's entire insurance market in hopes of encouraging more private insurers to invest here. But many speculate the strategy will work only if insurance premiums rise dramatically, as Citizens has proposed.

Florida's private insurers have long contended the real problem is insurance rates have been kept artificially low for decades because Florida's industry was regulated by an elected official. Starting in 2003, the insurance commissioner post became appointed by the governor and three other statewide elected officials.


What happened Thursday?

The state-run Citizens Property Insurance board approved a final round of rate hikes for 2006 that, if also approved by the state, would raise windstorm rates nearly 80 percent, or add $1,028 to increase the average policy cost to $3,363. Homeowner policies would jump 45 percent, or add $477 to raise the average policy cost to $2,706.

Does this affect me if I'm not a Citizens policyholder?

Yes, indirectly. The rate hike affects only Citizens Property customers, but it also provides more resources for Citizens in the event of another major hurricane season. In theory, that will make it less likely that all of the state's property insurance policyholders will have to bail Citizens Property out of a deficit situation like the one that happened after the 2004 and 2005 hurricanes. This year and next, all state policyholders are expected to be assessed nearly $1.5-billion to cover deficits in Citizens from those years.

Why were the increases so high?

Citizens Property has never before set its rates equal to its risks, despite a requirement set by the Legislature. Exposure for Citizens Property, more than any other Florida insurer, is overwhelmingly concentrated along the coasts and South Florida, making its potential liability from hurricanes much higher.

What's next?

State regulators have to sign off on the increases, which would then go into effect in two steps in 2006. The first step would begin with renewals and new policies in February; the second would take effect no earlier than June.

So are we done with rate hikes?

Unlikely. The latest increases don't factor in damages of up to $1-billion from Hurricane Wilma, which may force another round of price increases.

[Last modified December 16, 2005, 00:55:10]

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