The board of governors of Florida’s Citizens Property Insurance Corp. has instructed its staff to further examine a proposal for the state-run insurer to begin charging full actuarial rates on new policies, in excess of the 10% cap on rate increases that has constrained the company in recent years.
Under a recommendation forwarded to the board by its Actuarial and Underwriting Committee, beginning Jan. 1, 2013, premium rates for new Citizens policyholders would be required to meet requirements that they be actuarially sufficient. Renewal rates for existing policyholders would continue to be bound by state law limiting increases to no more than 10% annually.
Rather than vote on the proposal, the board asked that staff continue its consultations with regulators and outside counsel to ensure that it would be permitted under state law to charge the uncapped rates. In a letter to the board, Florida Chief Financial Officer Jeff Atwater, a former state legislator, expressed the unequivocal opinion that the higher rates on new business are not legal permissible.
“While I understand and support the efforts to facilitate the depopulation of Citizens and a return to a competitive private marketplace for Floridians, the removal of the cap for new business…is beyond the scope of legislative intent,” Atwater wrote. “As the president of the Senate during the debate and deliberation of the cap, it was not contemplated that the statute would be interpreted to employ selective application that would result in two sets of rates being applied to policyholders of Citizens. I would carefully urge the board to consider the policy implications for Citizens before moving forward.”
But Dan Sumner, Citizens’ general counsel, said the matter was not nearly so clear-cut. According to Sumner, Citizens is that it is bound by both state law and its fiduciary duties to policyholders that it must charge actuarially sound rates, except where explicitly instructed to do otherwise. Under the “glide path” legislation that took effect in 2010, which looked to promote gradually depopulating the insurer, it was instructed to implement rate increases that do not exceed 10% for any single policy.
“The reasoning that we are traveling under is that a rate increase would only be applicable to a renewal policy,” Sumner said. “Under any definition of how insurance terminology is used, a new premium for a new policyholder is not a rate increase. It is a new rate.”
With 1.4 million policyholders statewide, Citizens is the largest property insurer in the state of Florida, and among the largest in the United States. The plan to begin charging uncapped rates on new policies was estimated to reduce its policy count by 400,000 over the next 18 months.
Board member John Wortman, chair of Citizens’ Actuarial and Underwriting Committee, said estimates of rate adequacy from Citizens’ actuarial staff showed that both personal lines and commercial residential rates are currently short by 42.3%, while commercial nonresidential rates are 75% below the actuarially indicated levels.
“We need to recognize as we talk to the various constituencies – the OIR, the private sector agents, and the legislators and policyholders – that we’re kind of fighting this rate inadequacy that we have in an economic time that’s very difficult for policyholders,” Wortman said. “So we’re trying to balance that and live up to our mission of depopulation, recognizing all of these other concerns at the same time.”