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Letter to the editor

Citizens' business booms

The insurer of last resort may cover half of the state's total property risk by year's end.

By TOM ZUCCO AND JENNIFER LIBERTO
Published June 26, 2007

Five years ago, Citizens Property Insurance had about 500, 000 policyholders in Florida and there were concerns it had grown too large.

Today, the state's insurer of last resort is on a blistering pace to add more than 100, 000 new policies in June alone. The company originally designed as a backup for people who couldn't get insurance anywhere else is well on its way to shouldering at least half of the state's total property insurance risk.

In other words, more than half of the estimated $1-trillion total value of all insured homes in Florida could be insured by Citizens by year's end. No other state in the country comes even close to that kind of coverage for a public insurer.

"This is the people's insurance company; we own it, " said Florida Chief Financial Officer Alex Sink. She projected that Citizens could have 2-million policyholders by December.

"I just think it's important that we as Floridians understand how much we're exposed to, " Sink said.

Total exposure is the amount of money it would take to replace everything insured, and the likelihood of that happening is remote. Insurers often refer instead to what's called "probable maximum loss" as an indication of what their risk would be with a major catastrophe.

"The state of Florida would have to be hit by a Category 5 hurricane everywhere, " Citizens board chairman Bruce Douglas said Monday. "And that's not going to happen."

Still, it's hard to ignore the explosive rise in exposure since all property owners in Florida would have to bail out Citizens if it can't pay claims from a catastrophe.

Citizens currently has about 1.3-million homeowner policies, and its commercial business is growing by 1, 000 percent this year. That makes Citizens the fourth-largest property insurer in the nation.

In the Tampa Bay area, the number of Citizens policies grew from 18, 500 in 2002 to 238, 000 and counting this year, due largely to the area's sinkhole problem.

The growth in Citizens' risk is a point often made by officials from State Farm, Allstate, Nationwide and other private insurers. Citizens has claims-paying ability this year of about $8.8-billion, or about $3-billion more than the total of all claims Citizens paid in 2004-05.

But its risk is much higher than it was in previous storm seasons.

"When the state takes on more risk, it helps companies like ours, " said State Farm spokesman Justin Glover. "But remember that everyone in Florida will be left holding the bag if we're hit by a big storm and we're all assessed for a Citizens deficit."

If it wasn't for Citizens, many homeowners could lose their homes because much of what Citizens insures is property no other company will touch.

In a report last week, Paul Palumbo, senior vice president of underwriting for Citizens, noted that slightly more than half of the homes that Citizens insures are valued under $150, 000, and the number of mobile homes it insures has jumped from about 3, 000 in 2002 to more than 170, 000 in May.

Among those who benefit are the same private companies that are responsible for Citizens' growth. When their companies hand off the riskiest properties to Citizens, insurance agents can make money doing something the state-run insurer doesn't do: selling Citizens policies. The average commission for agents who sell and service a Citizens policy ranges from 6.9 to 8.6 percent for homeowners and about 12 percent for commercial policies.

That's less than the 12 to 14 percent that agents get for a private policy, but it adds up. Last year, Citizens paid out $362-million in commissions, all to private insurers.

"We're rewarding the insurance companies who have dropped policies in the state of Florida, " said Sen. Mike Fasano, R-New Port Richey.

Selling Citizens policies has become so attractive that some agents tout the fact that they do it, something almost unheard a few years ago. A State Farm agency in St. Petersburg has a banner outside its building that reads, "Get Your Citizens Policy Here."

"The Legislature put Citizens into competition with everyone else, " Glover said. "It was not something we supported. Now we're faced with some scenarios where customers who had State Farm go to Citizens based on the cost.

"You can't blame the customer, but we feel our agents provide a valuable service to customers."

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

[Last modified June 26, 2007, 00:25:57]