In response to my last blog on actions Citizens board could take to curtail the influx of new policies, I received comments from the president of the Florida Consumer Action Network, Bill Newton. Bill and I have had some productive exchanges in the past. I believe there’s mutual respect and we’ve even seen eye-to-eye on a few depopulation issues. However, even if his heart is in the right place, his facts and reasoning are not.
For those in the industry questioning why I even bother with this stuff, I can say only that Newton’s statement is, well…instructive–it reflects the thoughts of his members, if for no other reason than they believe what he tells them. He and others need to at least hear, occasionally, just how unfair the system they support is to the huge majority of consumers they claim to speak for.
First, let’s correct some of Bill Newton’s factual misstatements:
- The proposal to limit Citizen’s to homes under $500k in replacement value did not pass and therefore, is not the law. Since the limitation would have applied only to replacement cost of the dwelling, not the land, it only impacted around 5400 such homes anyway.
- Cat Fund coverage is purchased by Citizens, too. As a matter of fact, Citizens consumes over 40% of the Cat Fund’s capacity and is by far and away the largest single purchaser. Many carrier’s opposed the Cat Fund originally and are not in Florida today because they would be “forced” to purchase its coverage.
- Rates charged by insurance companies cannot, according to regulations, include a profit factor of more than 3.7% of premium. Therefore, a lower premium due to purchasing Cat Fund coverage does not allow more profit (just the opposite).
- Citizen’s is significantly cheaper than the private market. Using regulatory data, one can easily see how grave the disparity between the rates of Citizens and those of private carriers actually is. Check it out by clicking here. Other than wind-only policies, consumers choose Citizens for its lower rates, it’s promise of solvency, its sometimes superior coverage and because private carriers decline to write them at rates that are inadequate.
- Private carrier profits are not up; insolvencies and underwriting losses are up! By saying profits are up Bill is parroting statements some politicians and consumer advocates have made based on countrywide figures for P&C insurer’s generally–such information is obviously irrelevant.
I hate talking about solvency and know many carrier’s wish I wouldn’t. I also doubt Bill Newton would accept anything I’d have to say anyway. But…Florida is experiencing record level insolvencies; more now than we had right after the 04/05 storms. Underwriting losses are way up, too. Weiss Ratings, the only agency that doesn’t accept payments from carriers, reported that 35 Florida insurers had a rating of either D or F; up from 29 just since December. And, one of those, Argus F&C, has since been shut down. In fact, the only state-owned carrier Weiss gave an A+ rating to was Citizens, why… because it is the only one that can assess those it does not insure. Bill Newton needs to simply check with the OIR to find out how wrong he is on this one.
Frankly, Newton’s factual and logical flaws are profound enough to wonder if the facts even matter or if ignoring them is intentional. I don’t want to be unfair, but…to say the Cat Fund is a subsidy for insurance companies is so “out there” one wonders if he, and others, simply want their subsidies to continue regardless of who, or how many it hurts.
A recent premium notice for my homeowners policy reflected a modest increase in rate, but…it showed assessments that were nearly double the rate increase. Rates per $1,000 of coverage in Citizens have decreased 32% since 2007. Why am I, and millions like me, paying more so that those with coastal vacation homes can have rate decreases?
Inadequate rates at Citizens create numerous other problems, such as:
- People are encouraged to build homes on the coast or in sinkhole alley or to build unmitigated or poorly constructed homes. Such homes are unsafe and, in the long run, increase rates for everyone.
- Discriminatory assessments–poor people living in apartments or subsidized housing, who pay high auto rates because of inexperience, location, or youthful drivers subsidize rich people and non-residents with beachfront homes.
- It creates the potential for a financial disaster. Taxpayers have already contributed general revenue and assessments to Citizens for the storms of 2004 and 2005 somewhere around $2 Billion. They are on the hook for the next disaster as well.
- An insurance agent friend of mine was embarrassed to deliver a large commercial multi-peril policy to a local developer because it had assessments totaling nearly $60,000. The developer responded that it wasn’t a problem because his commercial leases allowed him to add government surcharges and assessments to his rent. In other words, small merchants, hair salons, boutiques and pizza parlors, will raise prices in order to pay the Citizens assessment on his commercial policy. And, their customers, homeowners and auto drivers, who have nobody to pass their assessments down to, will now pay twice. That’s the system Bill Newton is advocating!
A final note to Bill Newton…
…I respect you and we may never agree, but…by alleging there are complaints about Citizens exemption from bad faith you really showed your colors. Such complaints are from trial lawyers who want a guillotine over the head of Citizens like the one that allows them to extort settlements from private carriers.
You talked about carrier profits and I proved you wrong. Now I ask you to prove me wrong. Have you seen the profits lawyers make off of sinkhole claims? How can you say those profits, taken directly out of the consumers claim payment, are in the best interests of “consumers?”