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Close insurer loophole

Smaller insurers can charge rates far higher than Citizens', and home owners have no recourse. That must change.

A Times Editorial
Published September 30, 2006

As the public debate continues over how to ease Florida's insurance crisis, there's one way to help thousands of home owners that should not be controversial. The next time the Legislature meets, it ought to close a little-known loophole that allows smaller insurance companies to charge unconscionable rates to home owners who have no recourse.

This is a case of good intentions with unintended consequences. Under state law, the state-run Citizens Property Insurance must charge higher rates than the 20 largest private insurers in the state. The idea is that the state-run insurer should not be competing for business with the private market, although in reality the private market has dried up and Citizens is now the state's largest insurer. So most policyholders figure they're paying the highest rates possible when they are stuck in Citizens and that they will be better off if a private insurer comes along and plucks them out.

Not necessarily. It turns out small insurers that are not among the top 20 largest can take policyholders out of Citizens and charge them windstorm rates as much as 200 percent higher. And the home owner doesn't have the option of declining to be held up without a gun and remaining in Citizens. More than 100,000 Florida home owners find themselves in this untenable situation.

This is not right, and legislators such as Senate President Tom Lee of Brandon say they were unaware of this loophole and agree it needs to be closed. One reasonable suggestion by Insurance Commissioner Kevin McCarty would allow home owners to stay with Citizens if the rates offered by private insurers would be substantially higher. That requires a change in state law to set some ceiling, and it should be an easy call for state lawmakers.

Private insurers need incentives to take home owners out of Citizens and rejuvenate the private market, but not at prices Floridians can't possibly afford or reject. As state officials and a task force led by Lt. Gov. Toni Jennings wrestle with the big issues involving the insurance crisis, they have to be mindful of the smaller ones that also can have a huge impact on the individual home owner.

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