CITIZENS Surplus Notes…Eight Reasons!

There’s no telling how many policies will actually be removed from Citizens via the two pending approaches. One, is the old fashioned way–a handful of carriers will take many thousands of policies under the traditional approach used since 2001.  The other, more controversial approach, is the   “Surplus Note” proposal–only the most “financially qualified” carriers will remove several hundred thousand policies for ten years with rate increases subject to Citizens 10% glide path for three years.

More prominent lawmakers are now voicing support, but… with a few loudly railing in opposition, the media shining its worst light and non-qualifying domestic carriers working behind the scenes, my guess (and that’s all it is), is that the surplus note approach has a hard road ahead.

If it fails, of course, it should only make the traditional assumptions now scheduled for November 6th even more important.  Fortunately, OIR has given the go ahead for these assumptions, agents are receiving notices and both the demagogues and the media are hands off, for now.

Encouraging, too, is the OIR’s approval of another 60,000 removals on top of the previously approved 150,000 and the 84,339 policies already taken out this year. Assuming the usual percentage of opt outs, it appears that even if the surplus note program doesn’t survive…

2012 will still be the greatest single year for takeouts in Citizens history.  (See NOTE #1 below)

Delightful news but…it doesn’t explain opposition to the surplus note program. There are simply too many advantages to it, and…it’s immensely cost effective for Citizens. (See NOTE #2 below)

Sure, if I was a non-qualifying carrier I might not want a handful of tough competitors capturing ten years of market share advantage overnight–especially if it depletes a repository of targeted policies I also had in the crosshairs.

But, two lawmakers and one or two consumer groups–why are they so intent on killing the surplus note program? It barely stings the non-qualifying insurer’s, it doesn’t hurt consumers, and…it helps public adjusters and lawyers!

Representative Frank Artiles (R-Miami), a public adjuster, has threatened an injunction.

Senator Mike Fasano (R–New Port Richey) and the former Insurance Consumer Advocate (ICA) Sean Shaw who now heads Policyholders of Florida and works for a top sinkhole law firm, have both come out strong in opposition.

There are eight reasons why I  think their opposition is in conflict with either their oft stated goals, their traditional  allegiances or both.  Taken together they beg the question…”Why?”.

(1) The surplus note program is just a “choice” for consumers.  Consumers can opt out of the assumption and if they accept it, they can return to Citizens anytime with no penalty.

(2) Though they aren’t likely to tell their clients not to accept a solvent private market option, agents can also opt out and reject the appointment offer.  Agents can (and will) advise their clients on the ramification of accepting or rejecting the assumption, whether or not they remain as their agent; again, it will be the consumer’s choice.

(3) In essence, successful opposition to the program could deny “some” consumer’s the choice to reduce their assessment burden from the Citizens first tier level of 45% to only 6% annually with a surplus note carrier and not pay a higher premium for this benefit.

(4) The assumption company’s rates are subject to the same 10% glide path limitation of Citizens for three years and Citizens will continue along its current path of coverage reductions and glide path rate increases indefinitely. Therefore, it’s likely those left in Citizens will suffer continued coverage reductions and higher pricing but, by then… the surplus note offer, which didn’t include such coverage reductions, may no longer be available.

(5) With such a dramatic and virtually permanent reduction in Citizens exposure all Floridians  realize a dramatic reduction in assessment exposure on their other policies, including auto.

(6) According to published reports from public adjusters, under the new law Citizens policyholders are denied access to public adjusters “immediately after a loss when they need it most”.  They claim this is because their fee in Citizens is limited to 10% of the difference between the final claim payment and the original offer. In the private market, where there is no such restriction, PA’s can have unfettered access to claimants that are former Citizens policyholders

(7) Public Adjusters and plaintiff lawyers take full advantage of Florida’s “bad faith” statute; sometimes to force an undeserved settlement.  Citizens policyholders who would only be removed under the surplus note program will remain in Citizens which is not subject to bad faith law suits.

(8) Qualifying surplus note carriers are among the most solvent mono-line homeowners writers in Florida.  They would be the only carriers “mandated” by OIR to reinsure to the 100-year PML required under the surplus note program. If it exists at all, the consumers solvency risk is minimal.  Besides, there’s also the Florida Insurance Guaranty Association (FIGA) which consumer groups have touted as   justification for rate suppression.  Why can’t it be used to justify the surplus note program, too?

Fortunately, policy removals will occur in record numbers in spite of the inexplicable opposition of a few, but…the drawback of the traditional depopulation approach remains.

You see, by requiring the takeout carrier to keep the policies for ten years and to replace any that cancel or non-renew with more policies from Citizens, the surplus note program solves Citizens perpetual problem with churning of policies.

If past is prologue, the 210,000 to be  removed in November under the old approach are likely to churn back in down the road; which means…

“IF” the surplus note program is defeated, the 2013 legislature must act decisively to close Citizens front door to anyone able to find coverage elsewhere!

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NOTE #1: The OIR has approved the removal of 210,000 policies from Citizens beginning November 6, and 84,339 policies have already been removed this year with another 6,643 policies pending to be removed October 9 by First Community Insurance Company.  But, it will be some time before the numbers can be finalized. By law, the Citizens’ policyholders will be notified of the take-out request (assumption) on October 1, and will have 30 days to accept or decline. If policyholders do not respond, they will be “assumed” by the private sector company on November 6.  Regardless of the “uptake” percentage, it is expected that the total number of takeouts in 2012 will exceed those in 2009 (149,645 take-outs), 2010 (59,792 take-outs), and 2011 (53,577 take-outs).

NOTE #2: Citizens President Barry Gilway responded to a recent letter received from Representative Artiles (see media release) and provided additional clarifications and information about the proposed Surplus Notes Program.  Included with the letter was a Surplus Notes Program Fast Facts Sheet, which details the benefits.

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