Citizens Property Insurance Co. Once Again In The Hot Seat Over Policy Shift Deal

May 31, 2013

Governor Rick Scott has signed off on a bill aimed at shrinking the size, and risk, of Florida’s largest property insurer. With 1.3 million policies, Citizen’s Insurance Company is also run by the state. And the company is in hot water over a deal that pays a private insurance company to take over some Citizens policies.

Citizen’s Property Insurance became the largest insurer in the state in the wake of the 2004-05 storm season. After the winds and rains receded, so did many private insurance companies. Under a new law, Citizens can no longer insure properties worth more than 700-thousand dollars. The company cannot insure homes built along the coast. A homeowner who receives a rate from a private company that’s near what Citizen’s offers, would have to go with the private company. And, existing policies in Citizens would be shopped around to private insurers for them to pick up. The law has homeowners like John Thompson worried about the quality of those new, private insurers.

“State Farm, Allstate the big ones, they’re not coming back. So where are you going to put me? We’re going to incentivize, have all these hedge funds start up insurance companies, take my policy and not provide me the protections should something happen?” He said.

Thompson is with the group Policy Holders of Florida, which opposed the Citizens bill. But others say change is needed, because the rates charged by Citizens are too low.

The company has been trying to downsize in a process called de-population. That’s when a private insurer comes along, and takes on some of the less-risky policies citizens holds. But that depopulation effort came to a boil when, on a narrow 3-2 vote, the board that oversees Citizens agreed to pay upstart, private insurer Heritage, $52 million dollars to take over 60,000 Citizens policies. Board member Carlos LaCasa was the swing vote in favor of the deal. And says he believes it’s good for policy holders:

“We bought a cap on rates for three years, an unusual aspect of this takeout. Previous take outs did not have a cap on rates, which was why so many of them bounced back. We bought them not declaring dividends for three years so they could tuck more money into surplus.” He said.

The Heritage agreementis being panned by politicians on the left and right.

In a statement House Speaker Will Weatherford, a Wesley Chapel Republican said, he had, “serious concerns about the latest takeout agreement between Citizens and the Heritage Property and Casualty Insurance Company, particularly the lengthy backdated payments for coverage that Heritage did not provide.”

Citizen’s had never paid a private company to take on its policies before the Heritage deal. And some, like former Democratic Senator Dan Gelber view the payout by citizens as an indirect quid-pro-quo for Governor Rick Scott.

“I think the Governor needs to give the money back immediately. It was, in its best light, horrible judgment for him to take it. In its worst light, something I don’t even want to imagine,”  he said.

That’s because Heritage gave $110,000 to the Governor’s re-election campaign. The Governor has said he had nothing to do with the Heritage deal. The company is also less than nine-months old raising concerns that it’s not fully prepared to handle the policies it’s taking on. Even before the board made its decision, some members like Tom Lynch warned the affair wouldn’t end well.

“I am totally in favor of the end result of transferring risk, my problem is totally with the means of how we’re doing it. With all the things Citizens has been through, I just feel we’re doing things the wrong way.”

At a recent board meeting Citizen’s President Barry Gilway recently defended the company’s deal with Heritage.

“The reality is, our entire purpose is to work with companies to help them select the very best policies and remove those policies from Citizens.”   

In an appearance on Florida Face-to-Face, Senate President Don Gaetz backed Gilway. But Gaetz also said Citizens should be more transparent:

“I think some of the things Citizens Insurance company has done, I wouldn’t do if I was in that position. But at the time some people’s call for transparency really means ‘I want you to do things my way’.”  

The furor over Citizens effort to downsize hasn’t abated. Recently, an article in Vanity Fair magazine slammed Governor Rick Scott and Citizens for the Heritage Deal. House Speaker Will Weatherford is directing a house committee to examine Citizens-related laws again during the next legislative session, and Governor Rick Scott wants the company to provide greater advanced notice for its meetings.