Insurers win. Guess who loses?

Policyholders thought returning to Citizens would save them money. Not likely.

Published October 17, 2006

The relief that more than 115,000 Florida homeowners felt last week may be short-lived.

When Citizens Property Insurance was ordered Wednesday to take back policyholders whose premiums had shot up after they were returned to the private market, the switch seemed painless.

But even if policyholders choose to go back to Citizens, they could lose up to 80 percent of their private insurance premium and still owe Citizens for a yearly premium.

And if they choose to remain with a private insurer, they could still pay rates higher than Citizens if new rate requests are approved.

Insurance Commissioner Kevin McCarty on Wednesday ordered Citizens Property to take back homeowners policies that had been taken out of the state-run insurer by private insurers but were being charged steep, yet unapproved, rates higher than what they would pay with Citizens.

The key word is "unapproved".

McCarty's order granting relief is legal, Office of Insurance Regulation spokesman Bob Lotane said Monday, because the rates have not been approved, even though customers are already paying them.

State law allows insurance companies to charge proposed rates while they wait for regulators to approve or deny the request. If the rates are denied, the companies must issue refunds.

The two companies that have taken the largest number of policies out of Citizens this year - Florida Peninsula and Tampa-based HomeWise - had sought rate increases of 91 and 80 percent, respectively.

Both requests have been denied recently, Lotane said, adding that the companies can request a hearing or refile their requests at a rate that is still higher than Citizens'.

But for some, switching back to Citizens may be even worse. State law requires that once policyholders pay a premium to a property insurer, including Citizens, they automatically forfeit 80 percent of the premium, even if they cancel the policy the next day.

That means a policyholder could lose 80 percent of his private insurance premium, and at the same time owe Citizens for his new premium.

The insurer of last resort that is now the largest property insurer in the state, Citizens does not look forward to adding to its 1.3-million policies.

"This is going to create a tremendous workload for us," said Citizens spokesman Rocky Scott.

"We'll have to verify all of these policies to determine what they're being charged."

The fact that private insurers can charge rates higher than state-run Citizens is an "unintended consequence" of the legislation that created Citizens, Lotane said.

"They lawmakers did not intend for the private rate to rise above Citizens and be justified," Lotane said. "And that's what happened."

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


Insurers rack up the profits

Experts estimate that insurance industry profits nationwide may reach a record $60-billion this year, an increase of nearly $20-billion from 2005, the New York Times reported. The increase is due to higher premiums along the coasts, no major payouts for natural disasters, and strong investment returns. Insurers also saw profits from other lines of coverage, especially auto insurance and workers' compensation. The experts also warn that homeowners and businesses along the coasts probably will not see lower premiums as a result.