Citizens Surplus Notes–Freedom of Choice!

While I’ve come to expect opposition from the media against almost anything that might lower Citizens assessment burden, it appears that at least one elected official, Representative Frank Artile’s (and others) and  Sean Shaw’s group (Policyholder’s of Florida) may have already made up their minds about the Surplus Note program…they don’t like it! 

Knowing homeowners prefer the freedom to choose their own insurance company, most are thankfully keeping an open mind. This includes members of the Citizens board which, in an overabundance of caution, has requested an independent analysis of the Surplus Note program due sometime in December.

Unfortunately, while we wait for that analysis, the flawed old fashioned takeout approach is ongoing–with policyholder “opt-outs” somewhere in the neighborhood of 35% and no guarantee against substantial rate increases at renewal, these removals will either not occur or “churn” back to Citizens in the near term.  (See previous post; May 30, 2012)

Another wasted effort! Another opportunity to blame someone or something else for the problem!

Politics may be in play, and perhaps some self-interest, in clouding the surplus note proposal which merely bestows Citizens policyholders with an option to buy insurance from a solvent private company.  Consumers opting for the program have the same rates they had with Citizens, and the same cap on rate increases for three years.   They can stay in Citizens if they want to and they can come back if they change their mind, with absolutely no penalty.

To my knowledge no consumer group has ever endorsed a depopulation plan of Citizens.  But, in touting the surplus note approach, the President of the Consumer Federation of the Southeast, Walter Dartland, says , “…these are solid consumer protections.” and “…the program shows great promise.”

He’s right!

If given this choice Citizens policyholder’s could eliminate their 45% first tier Citizens assessment while avoiding the severe coverage reductions of Citizens; i.e., slashing liability protection from $300,000 to only $100,000; and more to come.

Why deny the opportunity to merely opt for something else, something better?  (See NOTE #1 below)

Citizens has often used its surplus to reduce exposure by purchasing reinsurance, the price of which includes profit, income taxes and acquisition expenses. But…it’s only good for one storm season–surplus notes is not only a loan that must be repaid, its exposure reduction lasts for ten years!

Finally… a sound solution to opt-outs and “churning”!

Under the program Citizens loans $300-350 million in exchange for reducing its Probable Maximum Loss (PML) by 25% and eliminating the exposure of 350,000 policies for an entire decade!

Mathematically…a no brainer!

As a former representative of agents I can tell you they don’t welcome the additional burden another takeout program will lay on their doorsteps. Some may even advise their clients to stay put, but…they understand that suppressing an option that could make all Floridians better off for the long run is not the way to go.

Qualifying surplus note carriers are among the most solvent mono-line homeowners writers in Florida and would be the only ones “mandated” by OIR to reinsure to the 100-year PML required under the surplus note program. If it exists at all, the solvency risk is minimal and backed by the Florida Insurance Guaranty Association (FIGA).

In response to political and self-interest opposition Citizens has now delayed implementation while an international financial firm thoroughly verifies the  conclusions of its actuaries and lawyers.

Such caution is fine and any uncovered issues should be addressed, but… if the independent review favors the Surplus Note Program then, as Dartland said  “…it needs to be implemented quickly…”.

In this way, Citizens 1.5 million policyholders can choose for themselves before the next storm season is upon us!

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NOTE #1: Also, the surplus note program reduces assessments on the majority of consumers not insured in Citizens–nine in ten don’t even realize they are taxed when Citizens can’t pay its claims. By some accounts, in just the first year after a bad storm assessment taxes on home, auto, and other insurance policies could be as high as $1,500 per family.  Charities and non-profits would pay too; so would small businesses some of which will pass their share on to the consumers already paying on their auto and home policies.

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