Florida Insurance Assessments

Background
Most states have “residual markets” that provide coverage to individuals and businesses that cannot find insurance in the private marketplace. In Florida, the residual insurer is Citizens Property Insurance Corporation, a state-run insurer with more than 1.3 million customers. While private insurers must charge rates that enable them to have money on hand in advance to pay anticipated claims, Citizens rates are insufficient to handle big payouts that come with major hurricanes. If Citizens runs short of money, it first charges its customers an assessment on future policy premiums – and if that amount is not enough, then all other policyholders in the state are assessed. These assessments are taxes that defer the cost of hurricanes, paying the debt over time.
 
There are other state entities that levy assessments:
o   Florida Hurricane Catastrophe Fund (FHCF), and the
o   Florida Insurance Guaranty Association (FIGA).

What are the insurance assessments
for 2011?
 
Property Insurance Assessments
·         FHCF Emergency – 1.3% for 2011, was 1% last year. Continues through 2012.
·         Citizens Emergency – 1.4% for policies issued or renewed through June 30, 2011; drops to 1% beginning July 1, 2011. Continues through 2017.
·         FIGA – Varies by company since some recoup what they paid in over more than one year.
Auto Insurance Assessments
·         FHCF – 1.3% through 2014

How assessments work for Citizens’ policyholders
Citizens’ customers are assessed first if a deficit occurs. Citizens Policyholder Surcharge can be up to 15 percent of the annual premium for each of Citizens’ three separate customer accounts (High Risk, Personal Lines, and Commercial Lines). Assessments can be levied for any account with a deficit, meaning that Citizens’ policyholders can be charged a maximum of 45 percent of their premium if a deficit occurs in all three accounts.

How assessments work for those without Citizens’ coverage
 If a deficit still exists after Citizens’ customers have paid their maximum assessment, this is what happens:
1.      Regular Assessment. This can be up to 6 percent of a policyholder’s annual premium for each of Citizens’ accounts that experience a deficit, to a maximum of 18 percent since there are three accounts. Insurance companies must pay this tax within 30 days of receiving notice and are permitted to recoup the money by passing the charge to policyholders when policies renew the following year. Many companies apply this recoupment over multiple years to ease the expense to their policyholders.
2.      Emergency Assessment. If deficits still remains, both Citizens’ policyholders and nearly all other property and casualty policyholders (such as auto and business policies) pay an Emergency Assessment of up to 10 percent of the premium, which can be spread over up to 30 years.
 
In 2008, the Florida Legislature expanded the assessment base to include property, auto and other lines of insurance, except for medical malpractice and workers’ compensation insurance.

Other assessments
The Florida Hurricane Catastrophe Fund (FHCF) provides a mandatory reinsurance mechanism for property insurance companies in Florida at a cost that is typically less than what is available from other sources. Reinsurance is insurance for insurance companies. The FHCF has money on hand to handle hurricanes, but would need to borrow money in the event of a major storm. To pay off the debt, the FHCF can assess all lines of property and casualty insurance, including Citizens, but not workers compensation, medical malpractice, accident and health insurance. Assessments from the FHCF can be up to 6 percent for hurricane losses from one season and up to 10 percent for hurricane losses in multiple years.
 
The Florida Insurance Guaranty Association (FIGA) pays claims for insolvent insurers. It does not accumulate funds in advance, so when an insurance company goes out of business because claims exceed their financial capacity, FIGA pays those claims through assessments on other insurance companies with a Regular and/or Emergency Assessment of up to 2 percent.
 
An assessment of $2 is also included on homeowner policies for an Emergency Management Fund to pay for preparedness, communication, and training of emergency personnel.  



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