Given: The State of Florida will assess every property insurance policyholder if Citizens Property Insurance Corp. cannot pay all of its claims from its reserve. Assessments are the last resort for the state-run insurer of last resort. Citizens will not fold unless (or until) the Legislature says it will fold.
Now, if a private insurance company had the same problem of not being able to meet its claims obligations, it would exhaust its reinsurance and close up shop. Faster than you could say "Hurricane of the Century," that company would hightail it out of the Florida property insurance market. At that point, the Florida Insurance Guaranty Association would step in, paying the claims that the private insurance company did not cover in part or in full.
FIGA will not run out of money, because the state can go back to the rest of the property insurers doing business in Florida and demand more money -- that is, the state can assess those companies the same way the state can assess policyholders to cover Citizens' losses. The companies can then pass their losses on to their policyholders by increasing their rates. To misquote the Hal David and Burt Bacharach song, "The insurance world is a circle, without a beginning, and nobody knows where it really ends."
Legislators continue to sing a different tune when it comes to Citizens, with lyrics closer to gospel favorites than movie soundtracks. Policymakers continue to cry for Citizens to let its policyholders go, lest a catastrophic storm wipe out the reserve and all of the state's insureds get slammed with a catastrophic assessment. Moving Citizens policyholders to private insurers would stabilize the market here and spare the state a whole lot of pain and expense.
The Florida Insurance Consumer Advocate's office issued and quickly retracted a report last year that suggested a different reality. Given the financial condition of Citizens at the time, and given the overall condition of private insurers, Citizens would likely survive a 25-year storm but a handful of private insurance companies would not.
If those insurance companies failed, FIGA would end up with a $200 million liability. Citizens, on the other hand, would cover the losses without an additional assessment. The report's conclusion was that moving policies from Citizens to private insurers would actually be riskier for Florida's policyholders and insurance market.
The Office of Insurance Regulation did not support the report's findings -- "erroneous" was the word used in its statements -- pointing out that there are so many unknowns, especially with data from insurance companies based in other states, that the data in the report is unreliable. The OIG added that accurate predictions of assessments aren't really possible.
For the Palm Beach Post, the specter of private insurance companies closing their doors is still a more imminent threat. Since 2010, Florida has lost 14 insurers to insolvency. And, while FIGA attempts to collect what it can from their liquidated assets, the fact remains that FIGA did levy an assessment in 2012 -- as it did in 2006, 2007 and 2009. Citizens has only asked for rate increases.
So, lawmakers and policy wonks and insurance insiders and consumer advocates will probably never resolve their differences. In Florida, the insurance debate is a circle, without a beginning....
Source: Palm Beach Post, "Shrinking Citizens still leaves ratepayers on the hook," Charles Elmore, Feb. 10, 2013
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