The Latest Outrage from Citizens’ Insurance

I’ve been pretty much transfixed by national politics in the last few weeks, but a front-page story in the Miami Herald grabbed my attention this morning.

“A Citizens committee moved Thursday to advance a new $350 million program aimed at incentivizing private insurers to take over policies from the state’s largest insurer. The full board is expected to approve the plan Friday and homeowners could begin to be shifted out of Citizens in December.”

The proposed “surplus note” program would take money from Citizens’ $6.2 billion reserve fund and lend it at 1.6% interest to private insurers who would agree to take over existing Citizens’ policies and keep them for 10 years.  According to the Herald, the 20 year loans would be interest-only for the first three years and would be “forgivable” if hurricanes hit Florida.  Citizens’ CFO Sharon Binnum said that 20 percent of the loan could be forgiven each year if there is a hurricane.  “If there is a storm in any one of the first five years…there’s an opportunity for the [insurers] to have some [debt] relief.”

The proposal has been cooked up by the Citizens’ board of directors without input from or approval by the state legislature or the public as part of its effort to dump hundreds of thousands of homeowners’ policies into the hands of private insurers.  As the Herald notes:  “In the last year alone, Citizens has raised rates, slashed coverage, and denied policies in an attempt to make itself less attractive and prop up the state’s limited private market.

There are so many things wrong with this, it’s hard to know where to start.  Basically, the Board wants to take money that policy holders have paid into the reserve fund for insurance protection and essentially give it to selected private insurers to bribe them to insure homeowners, which ostensibly is the function for which the insurance companies exist.  The private companies get the money at ridiculously low interest and pay back no principal for three years.  Better yet, hypothetically, if a hurricane hits anywhere in Florida three out of the next five years—and the odds of that happening are pretty good—they would not have to repay 60% of the “loan” principal ever.

In other words, the private companies get the money and the public assumes the risk.

Then there’s the question of whether the private insurers would ever pay up in the event of a major hurricane. The track record on this point is not reassuring. State Senator Mike Fasano noted that Citizens’ could give money to private companies that go bankrupt without paying back the loan.  And as the Herald notes:  Program documents from Citizens acknowledge that the company may not have the power to enforce its contract with a private company that becomes “financially impaired.”

Moreover, the selection of companies that would get this opportunity has been anything but transparent.  State Rep. Frank Artiles (R-Miami) claimed that the eligibility rules were written to exclude all but a few privileged insurers who are well represented by lobbyists in Tallahassee.

More fundamentally, this proposal really reveals how much the mission of Citizens’ Insurance has been perverted by its current board. Its priorities are clearly to minimize risk and support the interests of private insurance companies, not to protect Florida homeowners.  And the responsibility for this rests squarely with Governor Rick Scott.  South Florida residents and our representatives should be raising a stink about this.

I hate to keep harping on this issue, but the hits just keep coming.

Update:  Apparently, I’m not the only one who thinks this is indefensible.  See this post at Discourse.net.