Citizens

By Tom Zucco - FCAN Board member

Just a few years ago thousands of Florida homeowners jumped in cars and buses and made the journey to Tallahassee to express their outrage over soaring property insurance rates in the wake of the 2004-05 hurricane season. Their efforts led the the passage of HB 1A, which effectively reined in rates both in the private market and at Citizens.

The new law also had a downside. It signaled a mass exodus by the private market, which claimed it needed more money to do business here. That forced even more homeowners into Citizens, which now has about 1.3 million policyholders.

It looks like we may need to pay a call on Tallahassee again. This time, the Legislature is planning to force homeowners out of Citizens or dramatically raise the rates of those who stay.

So far, this has been a one-sided discussion. The insurance industry donated more than $7 million to lawmakers last year, and their wallets are open again this year. Citizens, however, is a state-run insurer and donates nothing. So already the deck is stacked.

What the private market wants is Citizens book of business, which represents hundreds of millions of dollars in premiums. But only if the price is right - which means forcing a 50-percent rate hike on Citizens' customers.

Here's an unspoken truth: This is a case where the state is actually doing something reasonably well. Citizens has flaws, but it's working. And most importantly, it's allowing people to remain in their homes.

But since Citizens doesn't write checks to politicans, all that is going to change.

Think of Citizens this way. The reason it was created, and the reason it still exists, is because the private market refuses to insure most of the areas along the coast. And I'm not talking about only the million-dollar homes on the water. Those are usually insured by a company like Chubb or Lloyds, and at a five-figure yearly premium.

I'm talking about the vast majority of homes in places like Miami-Dade, Monroe and Broward counties, homes in the $75,000 to $250,000 range. Pinellas County is a prime example. Citizens is the only company that writes affordable new policies in the county, yet 75 percent of the homes in Pinellas are valued under $250,000.

And those homeowners can look forward to a 50-percent rate hike?

Right now, Citizens policyholders are paying competitive rates that are well above the national average. Imagine what will happen when a yearly $3,000 insurance premium goes up to $4,500 a year?

And that's the key point. Property insurance is not a discretionary purchase like a new TV or a boat. We have to have it. It's a condition of a mortgage, and more than 5 million Florida homeowners have mortgages.

But we also have to have homeowners policies that will allow us to keep our homes. We had such policies before 2004. But then we were hit by eight hurricanes in two years, and instead of spreading the risk across the state and the country, the insurance companies isolated and eliminated the risk.

They left us with Citizens.

And now they want that, too.

To be sure, this is not about punishing private insurance companies. We all want to see them do well and make a profit. This is about spreading risk and keeping rates affordable in a state where the risk is enormous.

If the private market wants to be a partner, come on board. But if the State Farms and Allstates and

Nationwides are unwilling to do that, let Citizens do the job it was intended to do. It already insures the lion's share of the state's risk.

Remember one last thing.

The odds of a major hurricane (category 3 or higher) making a direct hit on Florida is about 4 percent a year. In all the years when there is no major damage (we're in our 5th non-hurricane year now) Citizens should be allowed to stockpile its reserves so it has the cash on hand to pay its bills when a big storm hits. The company was set up to do just that - and with complete transparency.

And the more policyholders that are in Citizens, the more risk is spread and the greater chance for those reserves to grow. It's a formula for success.

But the insurance lobby and the lawmakers they fund don't want that.

It's time to let them know what's at stake. Send an e-mail, write a letter or make a phone call to your legislator and ask them not to force us out of our homes.

Bruce Douglas, the retired chairman of Citizens, knew that the company had to raise rates. But he instituted a glide path. No more than 10-percent a year.

That made sense.
This doesn't.

TOM ZUCCO
Member, FCAN State Board of Directors