Assessments–Citizens vs. FIGA

Recently, after reading yet another editorial implying that FIGA (Florida Insurance Guaranty Association) assessments are similar to deficit assessments levied by Citizens, I found myself in a conversation with an industry associate who seemed to accept this dislogic and the resulting conclusions spread by the likes of the Sarasota Herald Tribune, the Palm Beach Post and perhaps a few other media outlets and consumer groups.    

You may recall the fur flying after a 2012 report from the Insurance Consumer Advocate’s (ICA) office showing potential assessments from various storm scenarios.  The report titled “Potential Assessments from Florida Hurricanes” quickly got taken out of context by the media, demagogued by the usual political suspects and used as proof positive that Citizens was in better shape than private carriers.    

The study, then and now, is buttressing arguments that private carriers are “weak”–to use the words of an article and an editorial in the Herald Tribune. When, in fact, the report warned up-front (p.4) that there were “Limitations” with the analysis and that it “…may not be applicable for other purposes.”  It’s author, actuary Steve Alexander, even cautioned that he should be consulted for “explanations”.

Perhaps the most perverse misrepresentation was that Citizens rates do not need to rise, but…private carriers needed to operate more efficiently, like Citizens. Whatever!

Anyway, in June of last year, Robin Westcott yanked the study from the web. Detailed op-eds rebutting the media’s flaky math were drafted–a few even making it into print, but…the damage was done!

While the media facts and figures were rebutted no one, it seemed to me, pointed out why assessments in Citizens are not even in the same ballpark as those levied by FIGA.  It’s time that such be done.

First, to fully understand delineations between Citizen’s and FIGA assessments one must first consider the difference between “failure” and “success”.  When Citizens levies an assessment, like those still appearing on the policies of millions of Floridians and businesses across the state, it represents success–it is the successful implementation of a legislative mandate to suppress premiums–it’s the way the mechanism is designed to work up front, before any losses occur. 

Not so with FIGA. When it levies an assessment it represents the failure of the system.  It’s not the way things are supposed to work–it’s what occurs at the back end because something went terribly wrong at the front end or along the way.  It reflects the public policy that policyholders deserve protection from the failure of the regulator and the legislature to prevent insolvencies. After all, “solvency” is just code for “actuarially sound rates.”  Citizens rates are intentionally not actuarially sound and the shortfall is made up by allowing the confiscation (assessment) of money from those it doesn’t even insure. 

Big difference, don’t you think?

Second, a Citizens assessment is levied as a result of trying to help someone, more often than not a wealthy coastal homeowner, pay less premium than they should.    

A FIGA assessment, on the other hand, is primarily levied to cover an unreimbursed loss.  A home has been damaged or destroyed. The homeowner paid the state approved premium to a state approved, allegedly solvent, company, but…the state miscalculated and the result is an otherwise covered loss is not being paid.  (See NOTE #1 below).

This last distinction makes all the difference in my book and goes to the heart of what’s wrong with assessments levied to subsidize residual market premiums. You can pay less with Citizens and get a guarantee of payment.  But, if you go to the private market, you’ll likely pay more and have the potential of an unpaid  loss accompanied with legal hassles, delays and an additional deductible. By the way, after a deficit rendering storm, private market claimants of insolvent carriers are, inexplicably, still assessed to cover the lower premiums paid by Citizens policyholders.    

Keep in mind that, in addition to FIGA losses being capped, its assessments are levied only against those policyholders purchasing similar coverage. In other words, an auto policyholder who cannot afford a home does not get assessed to pay for unpaid losses of a private residential insurer.  They do get assessed to pay for Citizens losses, however.  In fact, everyone gets assessed to pay for Citizens reduced premiums except rich doctors and employers on their workers compensation premiums.  (See NOTE#2 below)

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NOTE #1–In fairness, the OIR often blames insolvency on the mismanagement or even fraudulent activity by the carrier; or, that it failed to follow guidelines in the consent decree granting  the Certificate of Authority.  None the less, the system failed and policyholders have “unreimbursed” losses; which is the foundation for FIGA assessments.  Other amounts owed by the defunct carrier can also be funded by FIGA assessments, such as premium or commissions owed. For more see: 2012 Estimated FIGA Assessment Impact; Domestic Carriers.  See also, State of Florida’s Homeowners Insurance Market–a presentation by Kevin McCarty, 6/12/12. http://johnsonstrategiesllc.com/wp-content/plugins/download-monitor/download.php?id=245

NOTE #2–So, why does the Citizens assessment calculation exclude Medical Malpractice and Workers Compensation premiums?  Frankly, it’s because their lobbyists did a better job–I can think of no other logical reason to assess large commercial liability premiums and small auto or personal umbrella policies but not assess workers compensation or medical malpractice.  A good question is, if we did include these two lines in the Citizens assessment base, could we eliminate assessments on the automobiles of poor people who can’t even afford to own property? For more see  http://www.figafacts.com/home

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