Citizens Property Insurance Corp. leaders Tuesday approved a proposed 7.2 percent average rate increase for residential policyholders, while also backing a plan that could lead to substantially higher rates in the future for new customers of the state-backed insurer.
The Citizens Board of Governors took the steps as it faces a surge in additional policies amid troubles in the state’s private property-insurance market. The troubles have driven up private rates and caused companies to pull back on covering homes, spurring customers to turn to Citizens.
“The objective here is to create a healthy, private insurance market in Florida that better represents what we are supposed to be, Florida’s insurer of last resort,” Citizens board Chairman Carlos Beruff said.
Under the proposal, rate changes would vary widely, depending on factors such as types of policies and locations. For example, homeowners would see an average 6.1 percent increase, while policies for condominium units and mobile homes would see higher average increases, according to Citizens.
But people who buy policies from Citizens in the future could see substantially higher insurance bills because of a separate plan that seeks to require new customers to pay actuarially sound rates. A 2011 law caps annual increases for current customers at 10 percent, which means that many don’t pay actuarially sound rates.
The proposed rate increase and the change for new customers would require approval by the state Office of Insurance Regulation. The rate increase would take effect in August.
Citizens staff members initially proposed an average 3.7 percent increase in residential rates, but the board last month requested that staff work with regulators on potential ways to boost the rates.
That led to changes in the proposal to bump up the proposed average increase to 7.2 percent. As an example, the revised proposal would lead to Citizens setting aside additional premium dollars to avoid the possibility of what are known as “assessments.” Such assessments could be collected from insurance policyholders across the state --- including non-Citizens customers --- if major hurricanes hit Florida and inundate Citizens with costly claims.
Another part of the revised proposal would eliminate a practice that allows some Citizens customers to receive decreases in their premiums. Those customers would see no changes in their premiums, rather than decreases.
The proposal came as Citizens officials have become alarmed at an influx of policies, with the overall total increasing over the past year from 443,000 to 552,000, according to information released Tuesday by Citizens. Officials have said the total could reach 630,000 policies, or more, this year.
State leaders have long pushed to move policies from Citizens into the private market. But a combination of issues, including higher reinsurance costs and what the industry describes as excessive litigation, have led to private insurers during the past year raising rates by double-digit percentages and shedding policies.
The result is that Citizens often charges less for coverage than private insurers. Citizens President and CEO Barry Gilway said the situation has led to the state-backed insurer being the most “competitive player on the street” and the most financially sound player.
Perhaps the most-controversial step taken Tuesday by the Citizens board was to seek higher rates for new customers. Several businesspeople and insurance activists from Monroe County --- which is heavily dependent on Citizens coverage --- objected to what would be considered “uncapped” rates for new customers.
To address their concerns, the Citizens board approved a change to the plan to have a cap for new customers in Monroe County at 10 percent above the rates charged to renewing policyholders.
It remains unclear whether the state Office of Insurance Regulation will sign off on the overall plan for new customers. Gilway said regulators have not taken a position about whether they could approve the plan or whether it would take action by the Legislature.
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