Go with the guy with the deep pockets
If you’re looking for someone to float you some cash, you generally go to a friend with the bucks. If you’re an insurance company looking at the Florida market, the guy with the big bucks is Citizens Insurance and its looking to lend.
During the September meeting of the board of directors of Citizens Property Insurance Corp., some pretty big decisions were made. The first one is to reform the wildly unpopular reinspection program, which conducted 257,000 inspections this year. Three out of four of these inspections resulted in premiums being raised, primarily by removing previous discounts. These homeowners will now have the opportunity to dispute the premium increases by requesting a second inspection.
The second big announcement was Citizens is considering making low interest loans available to private insurance companies as an inducement for them to take existing Citizens policies on to their books. The proposed loans would start at 2 percent for a 20-year period with the guarantee that the private companies would keep these policies for a minimum of 10 years.
The dollar amount allocated by Citizens to offer to private insurers is $350 million. Since Florida has been extremely lucky in not experiencing any major hurricanes in several years, Citizens has accumulated a surplus of $6.2 billion, which it claims is still not enough to pay out claims should the big one hit. Citizens’ goal is to reduce or depopulate the number of policies it holds by up to 300,000.
The obvious objection to the loan program is that it’s a sweetheart deal for private insurance companies applying for a loan without assuming any of the risk. The first three years of the loan require interest only payments and are forgivable in part if hurricanes hit the state. There also is the fear that Citizens and Florida taxpayers could be left unpaid if the insurer goes out of business after receiving the loan, dumping all the policies back into Citizens.
Indeed, some Florida legislators have called it corporate welfare akin to insurance companies hitting the lottery and are calling for an audit of the program. However, while Florida lawmakers are bashing the program, many in the Florida business community, including Florida Tax Watch and Associated Industries of Florida, are coming out in favor of reducing the size and risk of the state-run company.
Citizens contends that the loans would help lure private companies to take on a larger share of the market and reduce risk to Citizens and exposure to all Florida residents. It also feels the loan program will boost the interest of private companies in policies that are held artificially low and are not competitive with the private market. In addition Citizens says that policyholders who opt to go with one of the new companies will ultimately have more choice in a private market. Citizens officials are expected to finalize the parameters of the loan program in the coming months and board members will make a final vote to implement the program in December.
Meanwhile Citizens continues to promote its program of depopulating its policies and has been successful in removing approximately 200,000 policies from its rolls. Starting Oct. 1, Citizens customers may receive a letter informing them of their assumption by a private carrier and will have until Nov. 6 to opt out of the new insurer or stay in Citizens.
Whether you need an extra $20 to get you through to pay day or a couple of million to grow your business, you still need to go with the guy with the deep pockets, and at this moment in time that would be Citizens Property Insurance Corp.