Recent efforts to shift insurance policies out of Florida’s Citizens Property Insurance Corp. and into the private market have met some resistance from certain legislators and advocacy groups. The current proposal, which has just passed through the Florida House, would pull homeowners’ policies out of Citizens and place them in private surplus line market.
Legislation designed to help state-backed Citizens Property Insurance Co. spin off customers to reduce its hurricane risk cleared the Florida House after a heated debate Friday.
The bill (HB 245) would let surplus lines companies, which have unregulated rates, take customers from Citizens if the firms meet certain financial requirements.
Gov. Rick Scott has taken the lead in pushing for the depopulation of Citizens. He contends its rates, limited by law, are artificially low, which could leave nearly all Floridians on the hook if a major storm hits the state.
That’s because Citizens can assess not only its own customers but those of other insurers providing a variety of coverage, including automobile policies, to make up its losses. Created to be an insurer of last resort, Citizens has become Florida’s largest property insurer with nearly 1.5 million customers as private companies have fled the state or downsized because of the hurricane threat.
The excess and surplus (E&S) market allows consumers to buy property and casualty insurance through the state-regulated insurance market, with greater freedom to negotiate specific coverage and price.
E&S insurance is popular with commercial customers whose risk management is an especially significant part of business, such as general contractors, trucking companies, and other businesses with unique or difficult risk exposures. Critics of the proposal doubt the ability of surplus insurers to cover heavy losses and argue that customers who are switched could receive higher rates.
Opponents said customers who get switched would face higher rates and could be left holding the bag if their insurer becomes insolvent and cannot cover claims. That’s because surplus lines are not included in the Florida Insurance Guaranty Association.
“Insolvencies happen. They happen all the time,” said Rep. Rick Kriseman, a St. Petersburg Democrat who opposed the bill.
Kriseman said the guaranty association has paid out $24.2 billion for claims against more than 600 insolvent insurers.
The proponents of the bill disagree, arguing that many of the surplus insurers instate have the backing of both a strong national presence and reinsurance, and these companies are likely more reliable and fiscally sound then Citizens itself. This additional freedom would allow the surplus lines market greater flexibility and an ability to adapt to market conditions and special consumer needs.
Supporters said surplus lines companies would be required to have at least $50 million in surplus funds to participate in the program and that many are owned by major insurance companies with even greater financial backing.
“They are mainstream participants in the U.S. insurance marketplace,” said Rep. Bill Hager, a Boca Raton Republican and former Iowa insurance commissioner. “They are recognized in the main as stable, good-faith operators.”
Floridians could depend on them in case the state is struck by a major hurricane such as Katrina, which devastated New Orleans, Hager said.
“Katrina’s coming,” he told his colleagues. “You’ll look good when you vote for this. Your constituents will look even better.”
Although the state Office of Insurance Regulation, or OIR, cannot regulate surplus line rates, it does oversee the companies in other ways and can kick them out of the state if they get into financial trouble, Hager said.
