Citizens Decertification…At Least Take A Look!

Nothing I’ve written on Citizens has generated more reader commentary than the post on Decertification 2/23/12.  Comments varied–some said it wasn’t politically feasible.  Others expressed delight that such a concept was permitted by statute. 

But…a large majority agreed that the board of Citizens should at least fully explore all options to terminate eligibility for Citizens in areas where the private market is proven to be open.

Citizens is implementing many commendable changes, including reductions in coverage; with varying degrees of efficacy.  However, it’s noteworthy that it hasn’t even looked into this issue. In fact, in its survey of property carriers seeking opinions on just about every takeout and keep-out idea; there wasn’t a single mention of the concept of “decertification.”

One subscriber opined that if Citizens wasn’t even examining this  important and statutorily authorized approach, is it fulfilling its statutory responsibility regarding last resort status?

I’m sure I don’t know.

But…one more time here’s what both the law and the plan of operation (Section 8(E)) authorize the Citizens board to do:

“…establish, subject to approval by the office, different eligibility requirements and operational procedures for any line or type of coverage for any specified county or area if the board determines that such changes are justified due to the voluntary market being sufficiently stable and competitive in such area or for such line or type of coverage…”

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Now, here’s what may not be obvious to those who seem automatically opposed to any form of decertification.

First of all, when I was on staff at the Florida Association of Insurance Agents (FAIA) this idea was seen as an effective and fair way to depopulate Citizens. I’m still on retainer with FAIA and my discussions indicate a recognition it’s still worthy of full exploration.

If applied to both new and renewal applications decertifying entire counties, or parts of counties, would reduce policy count and thus exposure in areas where consumers have adequate private options. The current approach penalizes everyone, especially those who have no choice but Citizens.

Decertification isn’t a “shoot and hope” approach–it’s lasered straight to the problems and problem areas. It doesn’t reduce coverage for those with no choice and it doesn’t create busy work for staff and agents.  And…it doesn’t endanger consumer service with fallacious proposals proven to have zero impact, like reducing agent commissions.

But, that’s not the best part of decertification. Its biggest attraction is that it guarantee’s benefit to the  private market.

Other than eliminating builder’s risk, current initiatives impact exposure (barely) but never directly policy count–which means private carriers continue losing to Citizens

Remember what Governor Scott said in his 777-Plan?

                         ” As Governor, I will return Citizen’s to operate as the insurer of last resort and level the

                            playing field so that solvent private insurers are allowed to compete with each other for

                            business, not with the subsidized and financially unsound government run insurance

                            company.”

Governor Scott knew the important contribution of insurance to Florida’s economy (See Note#1 below), and that many insurers have either been forced to leave or are in financial peril because they find it impossible to compete with Citizens.

Decertification tells private carriers, those still here and those that might return, exactly where they can compete with each other without being undercut by Citizens.

The Governor’s 777-Plan practically begs for the Citizens board to examine decertification.

Citizens new president seems to understand this too. In an article by Michael Buck for Best’s On-line News,   when talking about depopulation, Tom Grady said…

“…we have to do it by doing everything we can at Citizens to accommodate private sector participation.”

Focusing solely on coverage cuts and expense reductions won’t do the trick.

Neither will focusing only on takeouts.

There are too many opt-outs that enable consumers, and/or agents without markets, to effectively stay with Citizens. Coverage cuts, assessment warnings and attractive takeout offers make no difference in these situations.

Meanwhile…more and more Citizens applicants are being offered substantial discounts on their auto policy, not just from State Farm but, I’m told,  from other multi-line carriers who are catching on to the idea.  Decertification addresses this growing problem, as well, without a legislative battle.

Isn’t it time to take off the kid gloves and get serious about reducing Citizens policy count?

A good place to start might be to appoint a decertification committee or task force.  Or, maybe to survey carriers on what they think about the idea of decertification.

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NOTE #1: The latest OIR Annual Report states the following: “The Florida insurance industry continues to be an important economic driver for the state’s overall economy. According to data from the Bureau of Economic Analysis (BEA), in 2008 (the last year for which data are currently available) the insurance industry created $19.9 billion of the state’s $744.1 billion gross domestic product (2 percent). Moreover, the Florida insurance industry continues to be a significant driver to overall state employment. The BEA estimates that in 2008 the industry accounted for 181,757 jobs. For the same year, the BEA estimated the Florida aggregate labor force at 10.4 million jobs so that the insurance industry employment accounted for 1.7% of total state employment. Additionally, for Fiscal Year 2008-2009 the Florida Department of Revenue collected $667.4 million in insurance premium taxes.”

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Comments

  1. CDuncan says:

    Scott, one correction to your fine piece of journalism… On the issue of substantial discounts on auto insurance only if they refuse the takeout offer, that statement is not accurate. Undoubtably you were addressing the State Farm multi-line discount. The discount stays in place for takeout offers as well. There is no financial incentive for the policyholder to reject the takeout offer other than the premium difference on the HO policy.

    Respectfully,

    Craig

    • Craig, I thought this post would get your attention.:) And, yes…your clarification is helpful and I made a change to the offending paragraph. But, there’s more here than meets the eye. For example, the discount is often referred to as the State Farm discount but, I’m told, some other companies are picking it up now. THAT”S NOT GOOD at all.
      Also, even though the discount on the auto would remain if the policyholder accepted a takeout offer and stayed with the state farm agent, I think that very few state farm agents would accept the appointment offer and thus might advise their client to decline the takeout offer, and of course, keep the auto discount. And, some might even tell the policyholder to not go with one of those “Fly by Night” carriers and stay in Citizens where your claims are guaranteed to be paid and you keep your auto discount. Thanks for the comments and for reading.

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