Citizens Insurance Chair Wants To Sell Off Policies

July 14, 2011

Admonishing lawmakers for making a shaky insurance pool even more precarious, the chairman of the Citizens Property Insurance Corp. on Wednesday said the insurer should be allowed to sell off a large chunk of its business to private interests to reduce its exposure while continuing to cover the state’s riskiest property.

Such a move, which would likely raise rates dramatically for hundreds of thousands of policyholders, is needed as the state-backed insurer expects to eclipse 1.4 million policies within the next week, Citizens Chairman James Malone told governing board members.

Up to 900,000 Citizens policies are likely uninsurable in the private market because they cover older homes, mobile homes, and residences along the coast.

Malone estimated that the remaining policies could be marketed to some private entity because they involve billions of dollars in assets and a widely dispersed premium base, envisioning a return to Citizens’ roots as the true insurer of last resort.

“That has a value someplace in this open market,” Malone said. “The state of Florida needs money and this could be turned into an asset that had a value that people were willing to purchase in the private sector.”

Created as the insurer only for those who couldn’t get policies from private companies, Citizens has gone beyond that role to become the largest property insurer in the state.

The insurer continues to charge rates that are actuarially too low, many say. Coupled with carrier insolvencies and private market decisions to reduce books of business, Citizens adds about 1,000 policyholders every day. Because taxpayers back the company, critics say the addition of so many policies leaves the state a major hurricane away from financial fiasco.

“If the right decision had been made politically, let’s say five years ago… we wouldn’t have this exposure,” Malone said. “We could have (had) a huge event and everybody in this state could feel comfortable that resources were available to take care of the loss.”

Malone made the comments at the second to last board of governors meeting before all board members are removed from office July 31. After Aug. 1 a new governing board will be seated.

Florida officials have been trying to depopulate Citizens for years. With premium rates that have been restrained by lawmakers, the gap between what Citizens and private insurers charge customers continues to widen. So far, lawmakers have tried to provide financial incentives for private insurers to take Citizens policyholders from the pool.

“Today we use depopulation as a method to try to use the carriers that are currently in the market to have them take on our exposure and remove it from Citizens,” said Christine Ashburn, Citizens spokeswoman. “It sounds like what (Malone) is talking about is a bit different. ”

Sen. Garrett Richter, R-Naples and chairman of the Senate Banking and Insurance Committee, said Malone’s idea should be given serious consideration. After years of unsuccessful efforts to reduce the number of Citizens’ policyholders, Richter said lawmakers will be receptive to anything that works toward that end.

“All our efforts to deal with this issue have so far been unsuccessful,” Richter said. “I respect the chairman’s intellect and business acumen and will approach the idea with an open mind.”

Malone said he was skeptical that lawmakers will be able to accomplish much on the issue next year. Despite a strong push by Gov. Rick Scott and a cadre of new lawmakers swept into office in November, legislators were unable to reverse growth in the company’s customer base this past year.

Legislators did pass a law that will make it easier for private insurers to raise rates to meet their obligations, but Citizens was not given the ability to significantly to reduce its exposure.

“If they weren’t willing to take a tough vote in this cycle, I can’t imagine anyone is going to take a tough vote during an election year,” Malone said.

Malone’s comments come a day before Citizens finalizes a $900 million pre-event financing deal to shore up the fund’s liquidity for the remainder of the 2011 hurricane season and beyond. The sale is expected to conclude Thursday. A Citizens financial consultant said the sale went better than expected. Not only did the state receive more favorable rates, but the market was willing to purchase bonds of longer maturity.

“Financing by any measure was extremely successful,” said John Forney, consultant with Raymond James. “It enabled Citizens to meet its liquidity goals for the 2011 hurricane season and beyond at very attractive interest rates while expanding the investor universe and taking advantage of the excess demand that is here to lower those rates even further.”

By Michael Peltier
The News Service of Florida

Comments

5 Responses to “Citizens Insurance Chair Wants To Sell Off Policies”

  1. JIM W on July 15th, 2011 5:02 pm

    This is @ Carl. I understand what your saying but it would not work that way and you know it. Why would an insurance company want all that risk and have to reserve all that money to not make profit. It’s no different that if you were working for a company. You would want them to make profit so they could pay you and the other bills and taxes they owe so why any different. You obviously do not have a lot of respect for either the insurance company’s or agents. I would like to see you have to study as had as agents satying current on contract law and rules and regulations. It is a constant and the reason they do is to serve you. If an agent want a raise they have to sell more unlike punching a clock and taking a pay check home. No riding of the books there and they are constantly having to fight competition at the same time. They also have to be marketeers and business people if they own an agency right along with being a boss and so on. You think its easy then jump in there and see what it’s like. If you do I wish you luck because you will need all you can get. Don’t judge all agents or agency’s by some bad experience that you may have had. For the most part all these people work hard for what little percentage of money they get and are honest. Most of which will go out of their way to take care of you beacuse they know you work hard for the money as they do. Just saying.

  2. Carl on July 14th, 2011 7:40 pm

    Yea but if you look at the insurance companies as a whole they are making a nice profit. Maybe only the top people in the companies are making all the money I am not sure. Maybe all the insurance companies need to be not for profit and any money left over at end of year goes back to policy holders. Doesn’t hurt to dream and oh yea insurance agent if you do not like people getting upset about insurance rates going up then…get another job. (but I didn’t yell)

  3. Jim W on July 14th, 2011 3:30 pm

    I am in agreement with “Insurance Agent” after having spent almost 38 years in the business. I can assure you it’s not the agencies who controll the cost of the premium. In fact the agency’s are making less money now than they did 30 years ago on a percentage bases of commission. The agent or agency is one of the first places the insurance company hits when trying to reduce the cost. However, you don’t see the CEO’S get pay decreases or it’s employees. The other thing you have to remember is the cost of replacement and the liability is higher than it has ever been in history of our nation. So, for it to cost more just makes common sense. You can try and lay blame anywhere you want but that is the facts. Don’t get me wrong I don’t like paying more for insurance either but I do understand the underwriting of it and it’s cost. If you want to blame someone maybe you need to look else where for it is certainly not the agent or agency. Infact if they want a raise or more profit the answer they get is to go out and sell more. Problem is they are havng to sell more and making less with higher over head. Another significant problem with insurance is the ampount of false claims made by it’s policy holders which seem to think they are owed something no matter what. When that happens we all pay for it as it has to be indexed in as a part of the cost as well. So it’s not just yu who is getting hit it is all of us. Just saying something to think about and it is factual!

  4. insurance agent on July 14th, 2011 12:18 pm

    i am a insurance agent and NO the agencies not make the RATES and you will be SURPRISE how much the agencies makes off of policies …and as far as if you make a claim or not DON’T matter its statewide…I just get sick of people thinking its the agencies makes all of the rates and rules …IF YOU DON’T LIKE THE RATES IN FLORIDA MOVE

  5. Jane on July 14th, 2011 10:51 am

    And as private insrurers raise rates more people will be forced to use Citizens because they can’t afford to insure their homes any other way. Isurance agencies charge too much, make too much money as it is. Even if you never made a claim your rates just go up and up! Some people just don’t insure their homes and walk away when something happens.

Written by William Reynolds · Filed Under News