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State may revisit Citizens loophole

A rule meant to limit the number covered by Citizens insurance is instead costing thousands of homeowners money. Regulators say the Legislature may need to act.

Published September 23, 2006

More than 100,000 Florida homeowners, including some in the Tampa Bay area, have been caught in a loophole that allows a property insurance company to charge rates far higher than state-run Citizens Property Insurance. But relief may be on the way.

The catch is it will likely take a change in Florida law to make it happen.

Florida Insurance commissioner Kevin McCarty is considering something that used to be unthinkable - allowing homeowners to stay with Citizens if they're offered a windstorm policy from a private company that forces them to pay substantially higher rates.

Under state law, Citizens must charge rates higher than the 20 largest insurance companies in the state, so as not to compete with the private market.

The law also requires that if a private company agrees to provide windstorm coverage to a Citizens policyholder, the policyholder has no choice but to switch to the private company, even if the rates are higher. The aim is to shed as many policies as possible from Citizens, which has ballooned to become the state's largest residential property insurer with more than a third of the market.

Here's where the loophole comes in.

Small start-up companies that fall below the top 20, most notably Florida Peninsula and Tampa-based HomeWise Insurance, can - and do - charge windstorm rates as much as 200 percent higher than Citizens.

Boca Raton-based Florida Peninsula has taken about 85,000 windstorm policies out of Citizens over the past two years, HomeWise about 31,500. Most of the policies are in high risk areas of South Florida, but several hundred are in the Tampa Bay area.

The two companies were the only insurers to take policies from Citizens this year.

Besides profits from premiums, there is another good reason for insurance companies to take policies out of Citizens: bonuses.

HomeWise, which was founded last year by two former Citizens executives who are no longer with either company, has declined any bonus money.

But Florida Peninsula stands to collect $18-million in bonuses from Citizens if the company keeps its policies for five years.

McCarty likened the idea of allowing some homeowners to remain with Citizens to a policy of the new commercial property joint underwriting association that allows small businesses to stay in the state-run pool if offers from the private market are 25 percent higher.

But while sending many of those 116,000 windstorm policies back to Citizens would be good news for homeowners, it's just the opposite for Citizens, which is struggling under the weight of 1.2-million policies. Last week, Citizens board chairman Bruce Douglas said the insurer of last resort was already "vastly understaffed".

Any action will likely be months away because it will take an act by the Florida Legislature, either in special or regular session, to change the law.

The first step is the Property and Casualty Insurance Reform Committee. Gov. Jeb Bush has said he will call a special session if the committee comes up with solutions most legislators can agree with. The committee's first report is due Nov. 15.

"The Legislature will have to redefine how and who we can cover," Citizens spokesman Rocky Scott said Friday.

"We need some sort of clarity. It's bad enough that people were pulled out of the private market and sent to Citizens in the first place."

Tom Zucco can be reached at or (727-893-8247)

[Last modified September 23, 2006, 00:00:35]

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