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Citizens' rates pad agents' take

As the state-run insurer's policies have skyrocketed, private agents writing them are reaping big gains.

By TOM ZUCCO
Published June 27, 2006

As the number of homeowners driven to state-run Citizens Property Insurance Corp. has swelled to more than a million, and the cost of those policies has tripled in two years, one group has done fairly well for itself.

About 7,300 private insurance agents.

To the tune of more than $200-million this year alone - nearly twice as much as the agents earned just three years ago.

The arrangement works like this: In an effort to save money, Citizens - the insurer of last resort in Florida - uses private insurance agents to service its policies. Although Citizens pays the claims of homeowners it insures, private agents are paid a commission of at least 6.9 percent of the premium to arrange coverage, schedule inspections and make sure the policies are updated.

While Citizens' rates have soared, in some cases by as much as 300 percent, agents continue to receive the same 6.9 percent or higher commission on those premiums.

In 2003, Citizens spent $104-million on those commissions. The following year, it spent $124-million.

Last year, the figure jumped to $131-million. This year, Citizens projects it will spend in excess of $200-million. Not included are the commissions on nearly 320,000 policies in three troubled insurers belonging to Tampa's Poe Financial Group that were seized by the state and will be handed to Citizens by July 1.

The average annual fee per agent is up to about $27,400, although commissions can vary greatly from agent to agent.

The commissions are not listed on a typical bill and individuals are not specifically charged, but Citizens has to pick up the tab, an added cost that is indirectly passed on to policyholders in the form of higher rates.

This is not necessarily a bad arrangement, some industry analysts say, because it would cost Citizens hundreds of millions to set up offices statewide and pay its own agents.

But as Citizens' premiums skyrocket, the rates agents receive climb with it, at some point becoming cost-prohibitive.

"It's a tremendous cost that's going to have to be addressed," said Bruce Douglas, chairman of Citizens' board of governors.

Citizens has the authority to adjust the rate of the commissions, Douglas said, and he is considering a proposal to bring the commissions in line without discouraging agents from doing a job Citizens can't.

"The commission rates have stayed the same even though premiums are tripling," Douglas said. "We've got to say, 'Look, you (agents) are going to make more money. But we all have to have some sense of participation in what has become a volatile insurance market.' Citizens needs to exist and run as fairly and efficiently as it possibly can."

So far, the agents say, it has.

Although agent commissions can rise to as much as 12 percent for condos or apartments insured by Citizens, the overall rate Citizens pays is lower than rates found in the private market.

Those rates typically range from 10 to 20 percent, said Jeff Grady, president of the Florida Association of Insurance Agents.

And the agents do more than ship documents to Citizens.

"The case could be made that premiums are up and the workload is the same, so why are you making more money?" Grady said. "But an agent has to prove there is no private market willing to write that risk, then the risk has to be underwritten, including inspections, photos, replacement cost estimators and a rather manual process that creates additional workloads in the agency.

"There are many reasons they (Citizens premiums) are growing, the least of which is agent commissions," he said.

And while they are compensated for their work, most agents don't actively solicit Citizens business.

"The true value of an agent's business," Grady said, "is based on the agent's customer list. And since the aim of Citizens is to remove as many policies as possible, having a lot of those policies tends to undervalue that business.

"Agents don't own what's in a government market. You put those policies in at your own risk."

Writing policies for Citizens, Grady said, is simply something the state needs the agents to do. "We don't want to create a windfall on the backs of insurance buyers," Grady added.

Tom Zucco can be reached at zucco@sptimes.com or (727) 893-8247.

COMMISSIONS PAID TO AGENTS

* In 2003, Citizens Property spent $104-million on insurance agent commissions.

* In 2004, it spent $124-million.

* Last year, the figure jumped to $131-million.

* This year, Citizens expects to spend more than $200-million.

[Last modified June 27, 2006, 06:09:04]