While I’m sure there’s no connection, have you noticed the emerging hoopla about Citizens subsidizing wealthy non-residents ever since I blogged on the subject?
Immediately after I called it a matter of fairness my inbox was besieged with “atta-boys!” Then, within days, articles, press releases, editorials, even some lawmakers seemed to refocus on the problem of less-well-off Floridians subsidizing vacation homes of millionaires who have PO boxes in The Hamptons, Singapore, South Africa, Luxembourg and the French Riviera.
A prominent statewide public relations firm asked permission to send my post statewide, including to every lawmaker. Permission granted!
The Florida Chamber of Commerce asked to forward it to “every” Florida newspaper. Permission granted!
The Gainesville Sun and the Tallahassee Democrat, both published the entire piece on their editorial pages.
Steve Pociask, President of the American Consumer Institute, the first to detail the problem during 2013 legislative committee hearings, followed with his own release.
And, there was more!
Jerry D. Parrish with Florida Tax Watch published an editorial in several papers including the South Florida Sun Sentinel.
The Florida Chamber of Commerce, Associated Industries of Florida and the Florida Wildlife Federation released similar documents.
“It is bad public policy” according to Manley Fuller, president of the Florida Wildlife Federation.
“It’s grossly unfair said “Senate Banking and Insurance Chairman David Simmons, (R-Altamonte Springs) who declared he will “investigate” terminating the subsidy.
Rep. Bill Hager, (R-Delray Beach) vice chair of the House Insurance and Banking Subcommittee also publicly questioned why Florida residents should subsidize nearly 180,000 out-of-state policyholders.
Thus, it appears to me, the perennial Citizens debate has shifted from one of sticker shock and rate caps to one based on fairness. A good thing, but…fairness often depends on where you stand.
Some near the coast like the mayor of Sunny Isles Beach, Norman Edelcup, want to be “fair” to large developers of luxury condominiums. It’s good for the tax base, he says. “If Citizens were to deny insurance coverage to nonresident owners — in effect creating second-class citizens — I would be totally against it!”
Former Citizens board chairman Carlos Lacasa has expressed a similar mind set about restricting Citizens coverage to Florida residents, and so have others.
But, at least the debate has shifted–from what’s cheap and available to what’s fair and just!
After all, nobody is saying non-residents can’t build or buy in Florida and no one is saying they can’t live or vacation here. No one is even saying they can’t buy insurance.
They’re only saying it’s “unfair” for someone who is wealthy enough to pay cash for a vacation house on the coastline of a foreign country to be subsidized by someone who can’t even afford a home.
In the interest of fairness to both sides, I propose the following solution.
Instead of denying non-residents access to Citizens, simply charge them slightly more than an actuarially sound rate by eliminating any glide path and adding a small up-charge for the benefit they receive from state sponsored coverage financially backed by assessments. After all, their only other choice would be the E&S market, which is presumably actuarially sound but, has no government sponsored financial backstop.
Louisiana Citizens charges its own residents an equalization factor to deter applications that’s 10% above the market. Why can’t we charge that much above the E&S market in exchange for replacing the lack of a guarantee fund with assessments on Florida residents?
This helps both sides. Residents aren’t subsidizing wealthy foreigners and non-residents still have the option to maintain the benefit of government sponsored coverage. The threat of a first tier assessment for those insured in Citizens (residents & non-residents alike) is also further reduced by the modest up-charge.
After all, most non-residents purchased their Florida vacation villa’s without a mortgage (See NOTE #1 below). So why not surcharge them a small amount for an assessment backed product they don’t even have to buy?
Coastal dwellers concerned more about hometown development than hometown assessments, should think of it like out-of-state tuition or the resort tax.
Again, it’s a matter of fairness!
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NOTE #1: In 2012 360,000 Citizens policies were issued for non-owner-occupied homes. Among those, are 192,000 owned by folks from Canada, New York and New Jersey–82% of which didn’t need a mortgage.
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“After all, their only other choice would be the E&S market, which is presumably actuarially sound but, has no financial backstop.” Scott – that sentence implies an E&S inferior product and we know that’s not true. The E&S markets I use underwrite the building, not the owners address and at very competitive prices. Most excess markets are A rated and financially stronger than Citizens. Perhaps other agents should try E&S before Citizens.
I knew someone would make this statement and, I admit, the implication is there, but…I never said that E&S wasn’t financially sound, or even more sound than Citizens; it is. I only “implied” that, unlike Citizens, the E&S market has no “Guarantee” of claim payment. Citizens isn’t actuarially sound but, it will “always” pay its claims no matter what storm event occurs. No one can say that about any private carrier (E&S or admitted), even an “A” rated one. Also, I agree, more agents should try the E&S market before Citizens, but…one reason they don’t is the lack of a guarantee fund. Again, Citizens doesn’t have that problem; no guarantee fund is even needed; a privilege I think non-resident millionaires should pay for.
I will consider this further and maybe clarify in an upcoming blog just to make sure everyone catches this nuance.
Thanks for taking the time to comment and I hope our exchange here provides a helpful clarification to others.
Scott