Florida law should reflect public policy that Citizens Property Insurance Corporation is the insurer of last resort. Currently, Citizens is merely the insurance agent’s insurer of last resort. I propose legislation be enacted that makes a clearinghouse for admitted insurers to take policies before they get into Citizens and before Citizens renews any policy.
The idea is not completely mine. Robin Westcott Florida’s Insurance Consumer Advocate, briefly mentioned such an idea to me in 2011. We were standing in the hot sun protesting against outrageous rate increases in 2011 when she brought up the concept of keeping new policyholders from ever getting into Citizens by requiring those customers to be offered first to admitted carriers through a clearinghouse.
It is much better to have private enterprise in the business of insurance rather than the government. The problem is the private property insurance industry will not insure the properties in many geographic locations for various underwriting reasons. The media statement by Florida House Representative Mike Fasano accurately explains the current problem:
For many of the 1.4 million policyholders in Citizens – those policyholders have nowhere else to go. So for our governor, our legislative leaders, those in the insurance industry that are doing their best to shrink Citizens – that’s good. I’m happy about that. But for many homeowners, Citizens is the only game in town.….So as they shrink it, I hope they will take that into consideration.
Citizens’ role should be exactly what it is today: the insurer of last resort. The private companies that have promised every time we passed a piece of legislation that they would expand, write new policies – we found that that was an absolute lie, that they were not honest with the Legislature, they were not honest with former and present governors.
So for those that think Citizens will one day go away – that’s just not going to happen. Because the private companies have made it clear, the All States and State farms of the world have made it clear they have no intentions of writing policies in certain areas, which they call the high-risk areas. So Citizens plays a major role, an important role of providing homeowners insurance for homeowners, for condominium owners, for manufactured home owners, for businesses small and large…property insurance that cannot be found anywhere else. (emphasis added)
The reason all our neighboring coastal states have Property Insurance Pools and Windpools is exactly for the same problem we have them here in Florida. The private insurance market is treating the hurricane wind peril as if it were like the flood and earthquake perils, and they simply are afraid of wiping out years of profit with a large storm or two. Many admitted insurance carriers do not have the financial capacity to risk writing more policies with the wind peril.
What often happens in the insurance marketplace is Citizens is not the lowest price competitor, but the other lower priced insurance competitors refuse to sell the insurance submitted. The agent contacts three, four, or five carriers with rates higher and lower than Citizens and all could sell a policy, but the carriers refuse because while the rate and capability to sell a policy has been approved, they do not agree to sell the policy. This is the reason policyholders that are non-renewed by a private carrier end up being with Citizens at a lower rate. Citizens is not the low priced competitor, it is often the only competitor in the market or sometimes the only competitor that the agent has authority to send business to. We cannot do much if Citizens is the only competitor, but we can do something if Citizens is picking up or retaining business because the agent does not have authority to sell or place insurance in the market with an admitted carrier willing to write the insurance.
Florida insurance agents must be appointed by an admitted insurer to sell their customers an admitted insurer’s property insurance policy. The clearinghouse idea directly addresses the problem of making Citizens the insurer of last resort when it is only the insurer of last resort and not because the agent is not appointed by an admitted carrier or the agent refuses to get a quote from an admitted carrier that will sell the property policy at a price higher than Citizens.
Remember, all admitted carrier rates must be approved. While they can be high in comparison, they are based on actuarial principals that have to be approved by Florida’s Office of Insurance Regulation. Unlike surplus lines carriers, the rates and policy forms of admitted carriers are regulated for fairness.
The Clearinghouse would put all new Citizens policies up for availability at the time of placement and renewal for any admitted carrier regardless if the licensed agent is appointed by the carrier. Information in the application and other underwriting information would be made electronically available to every admitted insurer with an authorized rate in the geographic location of the proposed Citizens policy. If the admitted insurer wants the business, it simply claims the policyholder. This truly makes Citizens an insurer of last resort.
Significant changes in the law must be made for this to occur. Among those are significant concerns for agents:
- How does the agent that failed to place the business with another admitted carrier get paid, if at all? This is a political, as much as practical, question.
- Agent law must change to allow for an admitted carrier to simply take the policyholder without having to be solicited by an appointed agent.
State Farm, Allstate, Nationwide, and other insurers that sell through a captive agent program, will lobby vigorously to oppose this. Their agents will fight this reform as well. They will lose customers to other insurance companies willing to write property insurance. I think they should lose those customers before they are allowed to dump them into Citizens. Indeed, the Clearinghouse would be an incentive for those carriers to think about cancelling coverage or refusing to write property insurance in Florida.
Jeff Atwater, Florida’s CFO and Robin Westcott’s boss, should give Westcott an "atta girl" for suggesting this Clearinghouse idea long ago. Florida Senator David Simmons has asked for ideas about shrinking the number of policies in Citizens. He should start by talking with Robin Westcott.