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Citizens Adds Customers, Warns of Assessments

Citizens Property Insurance, Florida's state-run insurance company, reports that 200,000 new customers have signed on this year, bringing the total number of insureds to 1.3 million. These customers represent about $457 million in property coverage, or approximately 18 percent of Florida's total property insurance coverage.

The gains come from private insurers dropping high-risk customers or leaving the state entirely. According to some reports, State Farm is dropping 125,000 high-risk customers, all of whom will look to Citizens for coverage. For any other company, this kind of increase would be cause for celebration. For Citizens, though, the jump has put the company at risk -- and when the company is at risk, Florida property owners are at risk.

Most of the high-risk policyholders are homeowners who live in coastal areas. After the 2004 and 2005 hurricane seasons, which logged eight major storms in two years, private insurers began to cut their losses by nonrenewing policies or exiting the Florida market. In areas hardest hit during those seasons, homeowners turned to Citizens. At present, 42 percent of Citizens' homeowner policyholders are in Miami-Dade, Broward and Palm Beach counties.

In legislative hearings this week, Citizens representatives warned that a large storm could force the insurance company to raise revenue by assessing each and every homeowner's and auto insurance policyholder in Florida -- even those with private insurance. The company could cover a Hurricane Wilma, which was a 1-in-10 year storm, even a 1-in-25 year storm. If Florida is hit by a Hurricane Andrew, though -- a 1-in-50 year storm -- homeowners would have to bail out the company through assessments equal to about 10 percent of their premiums. Considering that most privately insured homeowners live in Central Florida, the issue could raise some political hackles.

The new governor has proposed one solution: Raise rates to meet the risk presented by the new influx of customers, as well as to assuage the "it's too quiet out there, so something big is going to happen" fears for upcoming hurricane seasons. To put the company in the position the governor would like it to be in, though, rates would have to increase by 55 percent.

Getting a 55 percent rate hike will take more than a little convincing. First, rate increases are limited to 10 percent annually by law. Second, an increase that size would send shockwaves through every sector of the state's economy.

It should be an interesting legislative session.

Resources:

Orlando Sentinel "Officials: Citizens Would Need 55% Rate Hike to Be Fully Sound" 01/12/11

Capitol News Service "Citizens Grows to 1.3 Million Policies" 01/12/11

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