The following opinion piece was prepared by FAIA in
response to "Private insurers could be in more trouble than Citizens in
storm season," an article that ran in several Florida newspapers last
By Jeff Grady
President, Florida Association of Insurance Agents
Zac Anderson’s June 9 article, "Private insurers could be in more trouble than Citizens in storm season," makes several
incorrect assumptions about Citizens Property Insurance and gives readers a
distorted view of Florida’s property insurance market. Let me set the record
Mr. Anderson referenced three storm scenarios from a
report by Florida’s Office of the Insurance Consumer Advocate (ICA). The report
never once described private carriers as "weak," as Anderson stated.
In fact, it warned upfront that there were "limitations" with the
analysis and that it "...may not be applicable for other purposes."
Its author, actuary Steve Alexander, even cautioned that he should be consulted
In comparing Citizens to private carriers, Zac Anderson
failed to emphasize that all Florida home insurers purchase substantial
commercial reinsurance, which, along with the Cat Fund, often relieves them of
90 percent or more of their storm exposure. Combined with other approved
methods, this enhances their claims paying capacity to levels sufficient to
handle the rare 1-in-100 year storm. The article by Anderson and a subsequent
editorial criticized insurers for not putting away more surplus in non-storm
years when often 60 percent of a policyholder's premium goes to pay for such
Carriers were criticized for opposing legislation
creating an insurer report card but no explanation was given for their
opposition. The fact is, in addition to OIR approving every phase of their
operations, insurance companies are already examined and graded by numerous
rating agencies that assign both number and letter grades. For example, to
obtain an "A" rating from AM Best, an insurer must be able to handle
a remarkably remote 1-in-250 year storm. The OIR only requires a 1-in-100 year
capability for private carriers and much less for Citizens.
According to the ICA report, the need for Citizens to
levy assessments after a 1-in-50 year storm striking Miami is undeniable. But,
Anderson didn't explain that private insurers minimize exposure in high-risk
coastal areas like southeast Florida. Citizens must take all applicants, even
poorly mitigated homes on the water's edge. In fact, while it insures a little
more than 20 percent of the homeowners’ policies, Citizens carries 40 percent
of the exposure—80 percent of which is in high-risk areas. No private insurer,
or reinsurer for that matter, would be structured in such a way.
Citizens’ shortfalls are charged to those it doesn't even
insure, including some who can't even afford a home. We're already paying
assessments because Citizens’ rates were too low prior to the 2004-2005 storms.
In fact, Citizens’ current $5.6 billion surplus, which Anderson (and the Herald
Tribune's editorial) praised, is not just the result of luck from six
storm-free seasons, it's also the result of nearly $2 billion in prior
assessments and another $700 million swept from Florida's General Revenue Fund
after the 04/05 shortages.
Another reason Citizens shouldn't get a "pass"
(the term used in the editorial) is that its policyholders are substantially
more exposed to assessments. According to Citizens, a policyholder with a
$2,000 premium would pay an assessment of $1,500 while a private market
policyholder would only pay $640...for the same Citizens deficit. And, those
who own autos would pay more on top of that!
By contrast, when a private company fails, triggering an
assessment from the state Guaranty Fund, only property policies are assessed
and the annual total, for both regular and emergency assessments, would only be
$80 for the first year, based on the same $2,000 premium. Unfortunately,
private policyholders still have to pay the Citizens assessment of $640 on top
of that to make up for Citizens' policyholders paying less than they should.
Keep in mind that, based on the recent federal census,
even coastal counties including Dade, Broward, and Palm Beach, have a majority
of households subsidizing beachfront homes in this fashion.
These are complicated matters, to say the least. But with
the courage shown by the 25 lawmakers who signed the letter urging Citizens to
operate soundly, maybe someday no one will get a so called "pass" and
all homeowners, will pay premiums commensurate with their exposure.
I urge everyone to read the paper by Sen. Richter and Rep.
Nelson titled "How Critical is Florida's Insurance Market."