A Citizens Clearinghouse and a Private Option!

No doubt you’ve heard the idea of a clearinghouse for Citizens new applications and possibly even, renewals.  It began making the rounds as early as last October and is now on the minds of  lawmakers, Citizens and the industry as something that would not only help with the so called “Citizens problem” but, which might even be politically feasible.

Those familiar with the Florida Market Assistance Plan (FMAP) and the depopulation initiatives dating back to the FRPCJUA may have an inkling of what I’m talking about and, frankly, there are many similarities, but…there are some important differences.

In this case applications submitted to Citizens would first go to a clearinghouse where they would be reviewed for eligibility (i.e. the 15% rule) and shopped with private carriers willing to write them. For carriers with a premium less than 15% higher than Citizens the policyholder would be ineligible for Citizens and, in essence, would have to accept the offer.  That’s current law, of course, but…it’s difficult to enforce.  A clearinghouse, if done correctly, would solve this problem and save millions($) in terms of exposure, fewer policies, multiple agent appointments and depopulation.

But, there’s a problem!

As we know, there are two approaches to marketing insurance: one,  direct writers, and; two, independent agents. Accommodating both with only one clearinghouse operated exclusively by Citizens would not only be expensive, it’s problematic.

Agents of Direct Writer carriers, like those of State Farm, don’t control or own the policyholder’s information–their companies do.  Having Citizens “assign” policies to private carriers wouldn’t be the same for them as it would be for independent agents.

Independent agents represent many companies and they (not their companies) own the policyholder information. This is why independent agents can shop “their” clients to multiple companies when the client is better served by a lower price, better coverage, claim service or financial stability.  It’s also why “ownership” is critical to the existence and value of independent agencies and is recognized by over 100 years of case law.  Citizens producers, reluctantly, forfeit this ownership in dealing with a state run insurer. Under the clearinghouse concept, Citizens is still the gatekeeper (the agent of record, if you will) for placement with private carriers; more than one of which may desire to write the policy.   Extending private ownership by public entities does not work and even if it did, it would be too risky to independent agents as new regimes come to power and new laws are passed.

Private contracts are for private entities to freely enter into…period!

Just as important, while  exceptions have been made for takeouts, direct writer companies (like State Farm) don’t allow their agents to be appointed with other companies.  Even in Florida, State Farm will only allow “limited service agreements” with takeout carriers it carefully screens and approves of.  Conversely, some companies that appoint independent agents reject any affiliation with direct writer agents; even limited contracts.

So you see, any legislation creating or authorizing a Citizens Clearinghouse must allow, even promote, the existence of private clearinghouses that operate along similar lines and for similar purposes.  Sub-agents “choosing” a private clearinghouse would submit policies and, if eligible for Citizens under the 15% rule and no private carrier was willing, only then would the policy be sent to Citizens.  Private clearinghouse(s) could contract with sub-agents, provide them with ownership and other efficiencies–efficiencies such as only one appointment instead of multiple limited appointments for just one or a few policies per company.

That’s a key benefit–a private clearinghouse could be the master agent, if you will, and contract with sub-agents eliminating tens of thousands of individual appointments with only one or a handful of policies per appointment. The savings to companies removing policies from Citizens or receiving them from the clearinghouse would be ginormous.  Same for agents, many of whom have dozens of appointments, with only one or two policies per appointment.

Any private Clearinghouses could be subject to the same standards and perform the same services,  (at less cost to taxpayers) than the Citizens Clearinghouse.  Those companies, agents or consumers who choose to, can always use the Citizens Clearinghouse instead of, or in addition to, private clearinghouses.

In other words–a single-payer approach is not only unnecessary, it doesn’t work for everybody.  But…by facilitating the creation and existence of bona fide private clearinghouses that operate along similar lines, everyone can still win!

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