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Beware Fund Transfer From Citizens Insurance

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By WALTER DARTLAND and BRAD ASHWELL Special to the Tribune

The Tampa Tribune

Published: June 10, 2008

On May 28, Gov. Charlie Crist enacted a line-item veto of a provision quietly slipped into the Homeowners Bill of Rights Act (CS/CS/SB 2860 and 1196) that could have left Floridians on the hook for an additional $250 million in insurance losses.

This new potential liability would have been added to the millions of dollars in deficits incurred by Citizens Property Insurance Corp. as a result of the 2004 and 2005 hurricane seasons.

Floridians already are paying a 2 percent surcharge on their homeowners insurance premiums and a 1 percent surcharge on their auto insurance premiums. These assessments on policyholders could continue for as long as 10 years. Why, then, would anyone think it a good idea to raid the surplus in two of Citizens' three accounts when the threat of catastrophic losses looms large?

The $250 million would have extended the life of a low-interest loan program for insurance companies enacted by the Legislature in the 2006 session. Initiated in 2006, the Insurance Capital Build-Up Incentive Program originally was funded with surplus tax revenues generated from hurricane repairs to homes and businesses. This go-round, however, the Legislature raided Citizens, taking money that would have been used to pay claims in future hurricanes.

The intent of the Legislature was to lower Citizens' risk exposure by shifting the potential liability to the private marketplace, an admirable goal. The program provided capital in the form of surplus notes to upstart companies to help them meet minimum surplus requirements. Thirteen companies shared the pot, with some receiving as much as $25 million in exchange for a promise to write an agreed-upon ratio of premiums to surplus.

Here's the rub. Only two of the 13 companies had written the premium volume they pledged to write, State Board of Administration data shows. And because companies carefully choose the policies they are willing to take out of Citizens to minimize their potential losses, Citizens' risk exposure has not been materially reduced. One of the only tangible results to come out of the program is that 11 insurance companies now are sitting on millions of taxpayer dollars - and consumers' risk of assessment remains virtually unchanged.

Gov. Crist's line-item veto of the fund transfer from the Bill of Rights legislation struck a blow for consumers. But the fight isn't over. Similar language appears in three additional bills yet to come before the governor.

Wallter Dartland is executive director of the Consumer Federation of the Southeast; Brad Ashwell is the consumer advocate for the Florida Public Interest Research Group.

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