Florida House OKs Alternative Hurricane Insurance

Legislation designed to help state-backed Citizens Property Insurance Co. spin off customers to reduce its hurricane risk cleared the Florida House after a heated debate Friday.

The bill (HB 245) would let surplus lines companies, which have unregulated rates, take customers from Citizens if the firms meet certain financial requirements.

Gov. Rick Scott has taken the lead in pushing for the depopulation of Citizens. He contends its rates, limited by law, are artificially low, which could leave nearly all Floridians on the hook if a major storm hits the state.

That’s because Citizens can assess not only its own customers but those of other insurers providing a variety of coverage, including automobile policies, to make up its losses. Created to be an insurer of last resort, Citizens has become Florida’s largest property insurer with nearly 1.5 million customers as private companies have fled the state or downsized because of the hurricane threat.

The bill that passed 66-48 now goes to the Senate where similar legislation hasn’t yet had a committee hearing.

It would let Citizens automatically hand off homeowners and other customers to the surplus lines companies. Customers, however, could opt out of the switch or go back to Citizens later, the bill’s supporters said.

Opponents said customers who get switched would face higher rates and could be left holding the bag if their insurer becomes insolvent and cannot cover claims. That’s because surplus lines are not included in the Florida Insurance Guaranty Association.

“Insolvencies happen. They happen all the time,” said Rep. Rick Kriseman, a St. Petersburg Democrat who opposed the bill.

Kriseman said the guaranty association has paid out $24.2 billion for claims against more than 600 insolvent insurers.

Supporters said surplus lines companies would be required to have at least $50 million in surplus funds to participate in the program and that many are owned by major insurance companies with even greater financial backing.

“They are mainstream participants in the U.S. insurance marketplace,” said Rep. Bill Hager, a Boca Raton Republican and former Iowa insurance commissioner. “They are recognized in the main as stable, good-faith operators.”

Floridians could depend on them in case the state is struck by a major hurricane such as Katrina, which devastated New Orleans, Hager said.

“Katrina’s coming,” he told his colleagues. “You’ll look good when you vote for this. Your constituents will look even better.”

Although the state Office of Insurance Regulation, or OIR, cannot regulate surplus line rates, it does oversee the companies in other ways and can kick them out of the state if they get into financial trouble, Hager said.

That argument did not sway Rep. Evan Jenne, D-Dania Beach.

“OIR stands for the ‘office of industry rubber-stamping,”‘ Jenne said.

Kriseman also criticized the legislation for having an opt-out rather than an opt-in provision.

“That means we’re asking our seniors, our seasonal residents and our families, who are busy working, to hopefully receive, read and understand the notification letter and then to take the step to reject the switch if they don’t want it,” he said.