TALLAHASSEE, Fla. -- April 24, 2006 -- You and your neighbor might be writing dramatically different checks to cover those big losses at Citizens Property Insurance Corp.
Thanks to back-to-back intense hurricane seasons, Citizens -- the state-backed insurer of last resort -- has run up more than $2 billion in deficits the past two years.
All Florida homeowners with insurance policies must pay to cover the shortfall, according to state law. But roughly one-third, or 1.7 million, will pay much less than others.
How much less?
Some homeowners paid as little as 70 cents for every $1,000 of premiums paid. The average most homeowners paid was nearly $70 per $1,000 of premiums paid.
Those who shelled out less did so because of a special exemption in Florida law that allows some smaller insurers, known as limited apportionment companies, to pay a small portion of the assessment. By extension, their policyholders -- about a quarter-million of whom are in Palm Beach, Martin and St. Lucie counties -- pay less.
In some cases, a lot less.
That difference has some state lawmakers and bureaucrats in Tallahassee calling the law unfair, especially as they weigh another Citizens bailout of $1.7 billion in the final two weeks of this legislative session.
As a result, they're trying to change the law. The Florida Department of Financial Services is drafting an amendment it wants to add to the property insurance reform bills that are moving through the Florida House and Senate. It would require the smaller insurers to pay a full share of the assessment.
Rep. Dennis Ross, R-Lakeland, said he's planning to introduce a similar amendment in the House Commerce Council on Monday.
"For two individuals right next to each other with different insurance companies to pay different assessments doesn't seem fair," said Rick Mahler, chief of staff for the financial services department.
In 2004, Citizens ran up a deficit of $516 million. On average, state homeowners paid $68 for every $1,000 of premiums. Customers of State Farm, Florida's largest insurer, paid $66 and customers of Allstate Floridian Insurance Co. paid $76.
But policyholders of some small insurers paid much less. Tower Hill Prime customers paid only 70 cents per $1,000 of premiums to cover the 2004 deficit. Tower Hill Preferred customers paid $2.50 and Universal Property & Casualty customers paid $2.60.
In fact, most small insurers' policyholders paid no more than $9.30 per $1,000 of premiums to cover Citizens' 2004 deficit, according to documents filed with state insurance regulators.
What irks some lawmakers and insurance regulators is that the 815,000 Citizens policyholders already are exempt from paying the assessment. Add to that the fact that these smaller, limited apportionment insurers make up one-third of the remaining insurance policies, and that means roughly half the state's homeowner policyholders are bearing most of the cost of paying off Citizens' deficits.
"I think that's great for them, not great for us," said Erin Montgomery of Palm Beach Gardens, who is insured by Clarendon Select, which is not a limited apportionment company. "I don't know where the fairness in all of this is."
Florida homeowners are angry about having to pay to bail out the state-run insurer in the first place. David Flynn of Jupiter found out this week he is paying $171, or about 5 percent of his premium, to cover the deficit. His insurer, United Services Automobile Association, is not a limited apportionment company.
"I think the more important thing is, I shouldn't have to pay for my neighbor's homeowners insurance," Flynn said. "That's more important than the fact that the guy on the other side is paying less of the bill."
Some insurers also think the law needs tweaking.
"The issue is, times have changed and maybe it's time to reexamine it," said Rade Musulin, vice president of operations of the Florida Farm Bureau, which has one of the smaller insurers.
Florida law allows insurance companies to apply for "limited apportionment" status if they have no more than $20 million in surplus capital and write at least 25 percent of their policies in Florida. About 40 companies qualified for this status last year, and they must reapply for it annually. They have about 234,000 policies in Palm Beach County and the Treasure Coast.
These companies get perks, including paying a smaller part of Citizens' assessments. The companies as a group have to pay only the first $50 million of any assessment. Then, just like all other insurers, the smaller companies get that money back by ordering policyholders to pay a surcharge.
So for the 2004 deficit, the one-third of the Florida homeowners market controlled by these small companies paid $50 million; the remaining two-thirds paid $466 million.
And now, when Citizens' 2005 deficit is projected to be $1.7 billion, that means two-thirds of the market will end up paying $1.65 billion of the tab.
Bills in the House and Senate would pour some tax money into Citizens to help cover the deficit, but Gov. Jeb Bush said Friday that he supports giving that money to homeowners rather than to Citizens.
The idea behind the law was to encourage small insurers to open up shop in Florida to increase competition. The companies say the law helps them stay in business. They say they aren't like large insurers, who have more capital on hand and can write big checks up front for the assessment. Doing that would put some of them out of business, they claim.
"You're going to be hit with this assessment right during or after you pay a bunch of money in claims," said Don Matz, president and chief operating officer of Tower Hill, which owns two smaller insurers. "Companies might not have the money to pay this assessment."
The companies also point out that they are writing policies and keeping a lot of homes out of Citizens -- homes that otherwise might contribute to the deficit.
"These smaller companies really provide the bulk of the capacity for homeowners insurance," said Barry Gates, senior underwriter for Bankers Insurance Co., whose sister company, First Community Insurance Co., is a limited apportionment company. "If they're not there, people would have trouble getting insurance at all."
Not all small insurers paid so little. Florida Farm Bureau General Insurance Co. policyholders paid $46 for every $1,000 of premiums, and Florida Preferred Property Insurance Co. customers paid $26.10.
But most companies were paying far less than the rest of the market. And some lawmakers have raised questions about the law, especially in a year when Citizens is posting record deficits and staring down the barrel of an active hurricane cycle.
"You should not be giving some insurance companies an unfair advantage," said Sen. Steven Geller, D-Hallandale Beach. "You may decrease the availability the larger insurance companies have."
The state Department of Financial Services is crafting an amendment that would require small insurers to pay a full share of the deficit, Mahler said.
They would pay their share of the first $50 million up front, as they do now. After that, the companies would collect the rest of the money from policyholders and then give it to Citizens. Currently, the companies pay Citizens first and then charge their policyholders to get it back.
"They wouldn't have to front as much, but their policyholders would pay as much as everyone else," Mahler said. "It was basically a common-sense issue."
Ross plans to introduce a similar amendment in Monday's House Commerce Council meeting. He said it would allow limited apportionment companies to tap the Florida Hurricane Catastrophe Fund sooner, but it also would require them to pay their full share of any Citizens' assessments.
Sam Miller, spokesman for the Florida Insurance Council, said he expects the special exemption to end this year.
"Based on what we've heard, they will probably take a hard look at whether the $50 million cap is appropriate," he said.
And many companies think that would be just fine.
The whole key is that as long as it's a pay-as-you-go system rather than advancing the money ahead of time, there won't be issues, said Don Cronin, CEO of United Property & Casualty, a small insurer.
"A major reason the limited apportionment definition was even created was to prevent smaller companies from being financially unprepared because of a single assessment that came due all at once," he said.
Florida homeowners such as Charles Matuella of Greenacres just want the process to be fair. "If we're assessed the same amount," he said, "we should all be in the same ballpark as far as payment."
Copyright © 2006 The Palm Beach Post, Fla., Stephanie Horvath
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