Surplus lines – make your voice heard
What do Punxsutawney Phil and Citizens Insurance have in common? One is a cute little rodent that makes predictions and one is a government agency that also likes to predict the future, only their predictions aren't so cute.
This month the Florida House passed a measure that would allow less regulated surplus lines insurance carriers to take over polices from Citizens Property Insurance Corp. Surplus lines insurance carriers operate outside the safety net that pays claims when insurers fail.
They are not subject to prompt payment rules and have no limits on rate increases. Also, surplus lines policies are not backed by the Florida Insurance Guarantee Association, which covers claims if an insurer becomes insolvent and, as stated, are not subject to state prompt payment rules. The companies also do not have to apply to the state Office of Insurance Regulation for a rate increase.
The possibility of this happening has led consumer advocates and lawmakers from both political parties to question whether such companies should be allowed to assume homeowner policies from Citizens. Part of the concern is that Florida's seniors and indeed the average busy homeowner may find their choice of staying in Citizens or participating in a surplus lines company complicated to understand.
That being said, not all surplus lines insurance companies are bad. Some of them include some of the largest and most reliable insurers in the world, and the proposed legislation does have some built in protection for Florida residents. To participate, the surplus lines companies need 50 million in reserves compared with $15 million for other companies, a high rating from industry analysts and enough reinsurance to cover damages from two once-a-century storms.
In addition, existing Citizens customers who want to stay will not be forced out, and those who do decide to leave can come back if they are unhappy. On a positive note allowing the surplus lines industry to take large number of policies from Citizens all at once could provide a broad enough revenue base for companies which would make them more willing to drop rates for homeowners.
The reason the Florida House has proposed this bill (HB245) is the old story of attempting to reduce the size of Citizens and therefore reduce the financial risk to both Citizens and Florida residents in the event of a major hurricane, even those who do not live on the coast.
Although currently Citizens appears to be well capitalized with about $6 billion, top lawmakers still consider the state owned insurer of last resort to be a financial risk. In addition, since Citizens rates have been kept low, it has discouraged other carriers to participate in the marketplace.
I agree the choices will be complicated for the average Florida homeowner and will require individuals to actively educate themselves. For the moment this conversation is far from over. The bill still needs to pass several more committees and the Florida Senate ,which it is on track to do. So if you agree or disagree with the proposed legislation, you still have time to make your voice heard.
In early February Punxsutawney Phil predicted another six weeks of winter –right around the same time the Florida House approved surplus lines. Looks like its Groundhog Day all over again, only with a different rodent.