Citizens Insurance will assess less; good news for private-market customers
What would you think of a CEO who says something like this: “Hey, customers, we have great news! We made some changes in our business and are proud to tell you that you have more reasons to buy from our competitors.” Ummm. What? Well, it makes perfect sense for the CEO of Citizens Property Insurance. We are, of course, talking about the upside down world of Florida property insurance, and a state-run insurer that desires less to run.
Tom Grady, the interim president and CEO of Citizens, sent out a statement to the media after Gov. Rick Scott signed HB 1127, a bill intended to reduce the hurricane taxes all policyholders pay for Citizens’ debts. Grady said the bill will reduce the tax burden on non-Citizens policyholders (all of you with a homeowners, auto, business and/or boaters policy from a private insurance company) by more than $300 per policy, in the event of a catastrophic storm. Many people probably don’t even know they have been paying these taxes. Check your insurance policy; it’s on your Declarations Page where the breakdown of costs is listed.
Simply, Citizens has three different lines of business: a Personal Lines Account (for homes), a Commercial Lines Account (condos and apartments), and a Coastal Account (high-risk, beach areas). If any of these accounts has a shortfall and can’t pay claims, Citizens policyholders can get slapped with a surcharge of up to 15 percent of their premium for EACH account. That’s up to 15 percent times 3 accounts = 45 percent maximum. Yes, 45 percent more than the premium now paid. This assessment threat is not an idle one, so Citizens customers take note please. The year after a big storm could cost you much more. The new legislation did nothing to change this. It changed the assessment threat for everyone who does not have a Citizens policy.
Non-Citizens policyholders currently are on the hook for up to 6 percent in surcharges for each of the three accounts. And on July 1, this “regular” assessment threat drops to 2 percent and for only the Coastal Account. So, rather than worrying about an assessment of up to 18 percent (6 percent for each of the three accounts), policyholders who are not Citizens customers only have to worry about the 2 percent tax. However, emergency surcharges still remain.
There’s more to the story: Cutting back on the regular assessment helps insurers protect their surplus, which is the money necessary if a second or third storm hits. Previously, when assessments were necessary, insurers had to pay them upfront within 30 days, which could cause a serious dent in the financial cushion needed for multiple storms. Now, assessments to insurers can be paid over time as policies are issued and renewed.
Obviously, the change makes Citizens policies look less attractive – and that’s the point.