In case you were wondering how Citizens Property Insurance Co. went from being an insurer of last resort with high rates to being an insurer of first resort with relatively low rates and a portfolio that threatens both customers and non-customers with gargantuan risks, here's what happened:
Politicians got involved.
Established in its present form in 2002 as a government agency tasked with writing insurance for Floridians living in high risk areas who could not otherwise find coverage in the private market, Citizens today is the largest property insurance company in the state, the ninth largest in the country, with 1.4 million customers and $500 billion in exposure.
A pivotal period for Citizens came after the 2004 hurricane season, which saw 16 named storms including Charley and Jeanne and the 2005 season, with a record 27 storms including one named Katrina.
Private insurance companies were slapped with the realization that they could no longer offer policies at the rates they had been charging. The exposure was too great, the severity of a given season was too unpredictable.
In 2006 they sought to raise rates to levels that would allow them to continue to offer coverage, albeit at higher prices than residents were used to paying, and remain fiscally sound.
A candidate at the time, soon-to-be Gov. Charlie Crist campaigned on the populist notion that insurance companies were being greedy and seeking to gouge residents. He promised to keep them in line and protect consumers from obscene profits.
The result was House Bill 1A, passed in a special session of the Legislature and signed by Crist less than a month after he took office.
Said Crist at the time, "With this legislation, the powerless have become the powerful, and the credit goes to the people of Florida for letting their voices be heard."
While it was true the people wanted lower insurance rates, what Crist either missed or willfully ignored was that government can't necessarily legislate what people want into existence.
Among other things, the bill rolled Citizens' rates back to 2006 levels and froze them there.
It also — significantly — changed the way property owners could buy from Citizens. Instead of selling only to residents who could show they couldn't get coverage anywhere else, Citizens became available to anybody who could show even one quote for a rate more than 15 percent above Citizens' rates.
The quasi-government company went from being an insurer of last resort to being the preferred choice for thousands upon thousands of residents faced with the alternative of buying from private companies intent on bringing prices in line with the realities of Florida's vulnerability to hurricanes.
At the time, Crist touted the bill as increasing competition by allowing Citizens to go head-to-head with private insurers. In fact, it decreased competition by driving away major insurers, unable or unwilling to match Citizens' artificially low, capped rates.
Crist wasn't alone in altering the very nature of Citizens Insurance. Supporting and shepherding the bill through the special session were Republicans and Democrats, including then-State Sen. Marco Rubio. HB 1A passed the Senate 40 to 0 and the House 116 to 2.
Fast forward to today and there is broad agreement that Citizens is too large, sets prices too low and carries more exposure than it could ever hope to cover in the event of a major disaster.
Should such an event occur, Citizens customers could, by law, get socked with rate increases up to 45 percent to make up the difference. Noncustomers are at risk too, as every insurance policy in the state — auto, home, life — is subject to a surcharge to help bail out Citizens.
State Insurance Commissioner Tom Grady hosted a "depopulation" conference on Friday seeking ideas to shed customers from Citizens rolls and to attract private companies back to Florida.
Legislation sponsored by Sen. Garrett Richter of Naples, who as a state representative in 2007 voted for HB1A, puts Citizens on a "glide path" toward actuarial soundness by allowing it to raise rates by as much as 10 percent a year.
Grady says the Office of Insurance Regulation, once the nemesis of private insurers, has a new outlook. "I think the office has a different view with the passage of time and the experience since 2007," he said.
Grady acknowledges there's no easy fix. The solution will probably lie somewhere between the two extremes of complete elimination of Citizens and the complete takover of all property insurance by the state entity.
Ideas such as raising deductibles, limiting Citizens coverage to the cash value of a home, as opposed to the replacement value, means testing of customers, and others are all on the table, Grady said.
Whatever the outcome, Florida's lesson with Citizens Property Insurance Co. stands as an example to those who would have government run health care or banking or investment or any other arena where people can be convinced things would be cheaper and better if only you could take greed and profit out of the equation.
"Price controls have unintended consequences," Grady said.
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