Citizens…The Case for Consumer Choice!

The last meeting of Citizens was both painful and profitable.  Board members followed Governor Scott’s directive to discuss various ideas that could reduce Citizens policy count and exposure and report their findings to the Cabinet on December 6th.

The idea’s were divided into two general categories: first, as suggested in my October 10, 2011 blog, the board reviewed ideas that could be implemented under its current plan of operation without changing the statutes. Next, they looked at recommendations to lawmakers for changing the statutes. This was under the premise that, despite preoccupation with redistricting, some lawmakers might be willing to implement modest changes in 2011.  Unfortunately, modest changes, doesn’t contemplate raising or eliminating the 10% glide path.

One legislative change discussed and rejected, was the repeal of the Consumer Choice statute; FS-627.3517.  Confusion over its impact, history and purpose abounds. And, it was apparent that Citizens staff was either ill-equipped or not inclined to correct the confusion. In fact, they often referred to it as “agent choice”, a deliberate mischaracterization. They also, perhaps by mistake, lead some board members to believe that Consumer Choice was part of HB1-A enacted in 2007. This is material to board members trying to understand the impact of consumer choice on depopulation.

Perhaps this is why there was no discussion on whether Consumer Choice acts as a hindrance or an assistance to depopulation. If it has existed since Citizens founding in 2002, the substantial track record proves that over 1 million policies have been depopulated under Consumer Choice; hundreds of thousands since the 04/05 storms.

Despite Citizens staff calling it “agent choice”, agents cannot prevent a policy from being removed. If the policy does not come out, it is because the policyholder chose to stay in Citizens and/or Citizens and the takeout company were unable to convince the policyholder to accept the offer. Nothing prohibits Citizens or any takeout company from directly soliciting a Citizens policyholder regardless of what an agent does or says.  In fact, the OIR actually had to order Citizens to stop prohibiting takeouts based on agent representation. Believe it or not, when a carrier would select policies of State Farm agents, Citizens told the company that such policies weren’t eligible for takeout; instead of telling the policyholder they had an offer.

 Here are some more facts about the Consumer Choice statute FS 627.3517.

Before its enactment  policyholders received the poorest of treatment and often had to pay more for less coverage. Worse, they lost their agent or were assigned to a company that didn’t use agents at all.  Because takeouts were “force placed”, agents were left to accept egregious appointment offers from carriers or reject the offer and lose their customers.

Anger and confusion became so acute that lawmakers passed the Consumer Choice statute twice during the 2002 legislative session; once in conjunction with the creation of Citizens and once in a stand-alone version.  For what it’s worth; no lawmaker, either in committee or on the floor of either chamber voted against it–not one.

Governor Bush specifically mentioned Consumer Choice as a reason for signing the Citizens bill. The Florida Association of Realtors supported it; the Florida Bankers Association supported it, the Florida Consumer Action Network supported it; all five insurance agents associations supported it.

And, after six months of deliberations and a mandate to consider repeal, the Long Term Solutions Task Force, (LTSTF) headed by Kevin McCarty did not recommend repealing Consumer Choice.  Later the Mission Review task force also did not recommend its repeal.
By causing takeout companies to make fair appointment offers to agents, Consumer Choice keeps new policies from coming in the front door.  That’s because agents can become appointed with a company that’s writing new policies. Without Consumer Choice, the agent often  had to keep sending policies to Citizens. It’s estimated that after the 04/05 storms nearly 150,000 policies were “kept out” for this reason.
Citizen’s staff testified at the Long Term Solutions Task Force (LTSTF) that Consumer Choice completely eliminated consumer complaints about depopulation:

    • LTSTF testimony also confirmed that depopulation was progressing at the “highest level” since Citizens was created.
    • Almost 500,000 policies were removed from Citizens under Consumer Choice immediately prior to the creation of the task force.
    • Amazingly, 91,000 were wind only policies taken from the high-risk account.
    •  After the 04/05 storms, Citizens again depopulated “record” levels of policies under consumer choice.

Summary:   “WHY” repeal Consumer Choice?  It creates a different procedure for “some” takeout carriers but, it doesn’t prevent takeouts and it aids keep-out of new policies.  The record is clear: satisfied consumers, willing agents, more depopulation and fewer “new” applications–that’s CONSUMER CHOICE.

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