A Major Hurricane in 2011 Could Result in Additional Fees to All Florida Policyholders
Citizens Property Insurance Corporation was created by the Florida legislature. Generally, Citizens’ goal is to pay claims from funds acquired through insurance premiums and other investments, but sometimes this is not possible. According to Fla. Stat. § 627.351(6), if Citizens’ funds for paying claims are depleted by a hurricane or other catastrophic loss, Citizens may impose surcharges and other assessments on Citizens’ policyholders, as well as other Florida insurance companies and policyholders to make up for deficits in Citizens’ reserves. To help explain its surcharge and assessment powers, Citizens has provided a brief summary of these powers on its website.
Last week, Citizens’ executives gave a presentation on Citizens’ financial health to Governor Rick Scott and the Florida Cabinet. Among other things, the presentation anticipates where funds will come from if there is a catastrophic loss in Florida in 2011. The report estimates that Citizens will be able to fully pay all its claims from a “1 in 5 year” hurricane event with its accumulated surplus. However, if a “1 in 25 year” hurricane event were to occur, Citizens would be required to seek additional funds from the Florida Hurricane Catastrophe Fund (FHCF) to pay claims. If a “1 in 50 year” hurricane event, or a “1 in 100 year” hurricane event were to occur, Citizens would have to seek funds from reinsurance, surcharges, and assessments.
Julie Patel, of the South Florida Sun-Sentinel, also reported on the presentation by Citizens’ executives. Based on Citizens’ estimations and Patel’s further calculations, the average Citizens policyholder could be subject to over $1,000 in additional fees if a major hurricane, the kind that is only expected to hit once every 100 years, were to hit Florida in 2011. According to Patel, these additional fees could amount to:
- An additional $1,003 for the average Citizens policyholders who pay $3039 combined on their home and car insurance policies.
- An additional $323 for the average policyholder who is not with Citizens and pays $2,522 on their policies.
- An additional $47 a year for Citizens policyholders over the next 29 years.
- An additional $39 a year for non-Citizens policyholders during the next 29 years.
Although these additional costs are not expected to be charged back to Citizens and other policyholders unless there is a major hurricane this year, the possibility of paying these costs may not be readily apparent to policyholders. Thanks to Julie Patel for her clear quantification of how much policyholders may be required to pay if a “1 in 100 year” hurricane hits this year.
I wonder how much the modeled loss estimates would vary if the values in the CPIC portfolio were updated to be current with their new valuation standard.
Julie Patel's information was helpful. It is, however, strange that this story hasn't been told better, before now. For example, Citizens policyholders used to pay nothing in assessments to cover their own deficits; everybody else did though. And, did you know that until SB-408 passed they could still "avoid" paying their 1st tier assessment of 15% per account by just non-renewing? Also, and most disconcerting to some, is the fact that even in coastal counties Citizens policyholders are never (that's never) the majority of households. This means the majority of those in Dade, Broward, Palm Beach and even Monroe are subsidizing those with nicer homes on the coast. This is the real, and as yet untold, story to me.
I am not a Citizens Insurance policy holder, however my insurance company has billed me for the Citizens surcharge and other assessments. I guess I didn't get the memo when this came up in the Florida Legislature. What happened to the insurance companies having insurance to cover their losses? Natural disasters happen...time for the insurance companies to stop crying "poor".