Insurance Company to hold off on increases

Friday, January 05, 2007

By Sarah Stover
Hometown News Staff writer

NORTH PALM BEACH - Just wait.

That’s what Sen. Jeff Atwater, R-North Palm Beach, asked the Board of Governors of Citizens Property Insurance of Tallahassee to do before making a decision about another rate increase for policyholders.

They listened.

Sen. Atwater sent the board a letter on Dec. 5 and on Dec. 7, it voted unanimously to table the agenda item until insurance issues are discussed during a special legislative session on Jan. 16.

“We had a situation that there was a chance we could’ve been sent back to the drawing board to redo all of our rates, depending on what is decided during the session, (so we decided to wait),” said Citizens public information manager Rocky Scott.

Citizens has more than 112,000 policyholders in Palm Beach County who are covered under three separate policies, depending on where they live. But a proposed rate increase of 55 percent - that may or may not go into effect after the special session - will affect all Citizens’ policyholders.

During the 2006 legislative session, Senate bill 1980 was passed, which required Citizens to change its rates so the company could obtain reinsurance to cover claims in the event of a massive natural disaster. If storm damage from a hurricane exceeds $5.6 billion, insurance companies will be helped by the Florida Hurricane Catastrophe Fund to cover claims. Citizens had to estimate the cost of reinsurance in 2007, and its estimate was $975 billion. The estimate was a result of determining probable maximum loss, said Mr. Scott.

According to the bill, probable maximum loss for residents covered under the high-risk policy was determined from estimating what would result from the occurrence of a one-in-70-year storm.

For those covered under personal lines, or essentially, properties not requiring wind insurance, and commercial lines, or small businesses, apartments and condominiums, a loss resulting from a one-in-100-year storm was estimated.
Several factors went into determining the rate. One important factor is location.

“For example, say there’s a four-story condo on a beach all by itself. Put one next to it and the rate is going to go up because now we need to account for damage that might be caused from the debris of the buildings,” said Mr. Scott.
If a move by Sen. Atwater and other legislators to repeal certain sections of the bill fails to pass - including a mandate driving the 55 percent increase - the increase will go into effect in March.

Although Sen. Atwater does not have any indication which way his colleagues will vote, he thinks they will all realize the current system is hurting their constituents, not helping them. Sen. Atwater believes that even representatives from areas who oppose raising rates because their areas were not affected by the storms of 2004 and 2005 will agree a better solution is needed.

“I am confident enough in my convictions that the stakes are so high and the system we’re operating under today is broken, (that sections of 1980 will be repealed),” he said.

However, a new solution is yet to be determined. One part of it might be to increase Citizens’ revenue through other means, so rates do not have to increase every time there’s a hurricane or tornado, said Sen. Atwater.

“If Citizens could cover other, more predictable perils, such as fire and theft, which have less of an impact on rates, what would happen is what happens with other companies’ rates; they would decrease if policyholders use Citizens to cover all of those aspects. Citizens could be more competitive and the extra revenue could be a source to draw from in times of natural disaster,” said Sen. Atwater.

He does realize this angle will not be attractive to other insurance providers, who are satisfied with Citizens’ current situation of only covering wind, hurricane and other high-risk disasters, which most providers do not or cannot.

However, Citizens is not satisfied with the current situation for the same reason. The company is required to take on residents who cannot find high-risk coverage through other providers. This has caused an increase in the number of people making claims and creates more of a dent in funds to cover them, said Mr. Scott.

“We already have at least 100 claims from Volusia County due to the recent tornados,” he said.

Although Sen. Atwater understands insurance companies need to have enough revenue coming in to meet claims, he also thinks there might be a better solution than simply raising rates.
“We have had unique events brought on by nature that Citizens could not have possibly foreseen, but I believe the people of Florida need relief,” said Sen. Atwater.

He wants residents to understand that some aspects of Bill 1980 brought relief. Citizens had a $1.76 billion deficit in 2005, said Sen. Atwater.

Instead of charging residents an 11 percent premium to cover storm costs, legislators appropriated $715 million of state general revenue to help the company with its deficit. This action dropped the premium assessment billed to residents to 2.5 percent.
Despite the help, Citizens still sought rates increases. The fact that the 55 percent increase would be in addition to another increase was one reason Sen. Atwater wrote to Citizens officials.

“What set this firestorm off is on Jan. 1, we (had) another increase (go into effect),” said Mr. Scott.

An approximate 26 percent rate increase went into effect on 2007 policies. The increase was deemed necessary after Citizens looked over costs from the 2005 (hurricane) season, said Mr. Scott.

The increase should have gone into effect earlier, but debates over it delayed it, he said.

Citizens’ officials agree with Sen. Atwater that insurance costs are becoming problematic for property owners.

“We don’t want to put a harsh chain on anybody. Everybody has to realize rates have to go up, but it is not our intention to cause people to sell their homes,” said Mr. Scott.

Policyholders who renew after March will be hurt most by the double increases, because they will pay for both at once. Those who renew before March will have a few months to adjust, said Mr. Scott.

“If people are already paying $3,000 (on their premiums) and then they get hit with $6,000, that’s a heck of a hit,” he added.

Bruce Douglas, chairman of the Board of Governors for Citizens, wants to make the increases in rates gradual, said Mr. Scott.

The board will wait for the results of the special legislative session before discussing the increases at its Jan. 25 meeting, a press release said.