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State may revisit Citizens loophole
By TOM ZUCCO, Times Staff Writer
Published September 23, 2006
More than 100,000 Florida homeowners,
including some in the Tampa Bay area, have been caught in a loophole that allows
a property insurance company to charge rates far higher than state-run Citizens
Property Insurance. But relief may be on the way.
The catch is it will likely take a change in
Florida law to make it happen.
Florida Insurance commissioner Kevin McCarty
is considering something that used to be unthinkable - allowing homeowners to
stay with Citizens if they're offered a windstorm policy from a private company
that forces them to pay substantially higher rates.
Under state law, Citizens must charge rates
higher than the 20 largest insurance companies in the state, so as not to
compete with the private market.
The law also requires that if a private
company agrees to provide windstorm coverage to a Citizens policyholder, the
policyholder has no choice but to switch to the private company, even if the
rates are higher. The aim is to shed as many policies as possible from Citizens,
which has ballooned to become the state's largest residential property insurer
with more than a third of the market.
Here's where the loophole comes in.
Small start-up companies that fall below the
top 20, most notably Florida Peninsula and Tampa-based HomeWise Insurance, can -
and do - charge windstorm rates as much as 200 percent higher than Citizens.
Boca Raton-based Florida Peninsula has taken
about 85,000 windstorm policies out of Citizens over the past two years,
HomeWise about 31,500. Most of the policies are in high risk areas of South
Florida, but several hundred are in the Tampa Bay area.
The two companies were the only insurers to
take policies from Citizens this year.
Besides profits from premiums, there is
another good reason for insurance companies to take policies out of Citizens:
bonuses.
HomeWise, which was founded last year by two
former Citizens executives who are no longer with either company, has declined
any bonus money.
But Florida Peninsula stands to collect
$18-million in bonuses from Citizens if the company keeps its policies for five
years.
McCarty likened the idea of allowing some
homeowners to remain with Citizens to a policy of the new commercial property
joint underwriting association that allows small businesses to stay in the
state-run pool if offers from the private market are 25 percent higher.
But while sending many of those 116,000
windstorm policies back to Citizens would be good news for homeowners, it's just
the opposite for Citizens, which is struggling under the weight of 1.2- million
policies. Last week, Citizens board chairman Bruce Douglas said the insurer of
last resort was already "vastly understaffed".
Any action will likely be months away because
it will take an act by the Florida Legislature, either in special or regular
session, to change the law.
The first step is the Property and Casualty
Insurance Reform Committee. Gov. Jeb Bush has said he will call a special
session if the committee comes up with solutions most legislators can agree
with. The committee's first report is due Nov. 15.
"The Legislature will have to redefine how and
who we can cover," Citizens spokesman Rocky Scott said Friday.
"We need some sort of clarity. It's bad enough
that people were pulled out of the private market (and sent to Citizens) in the
first place."
Tom Zucco can be reached at zucco@sptimes.com
or (727-893-8247)
Credit: TOM ZUCCO, Times Staff WRITER
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