Florida homeowners covered by Citizens Property Insurance could face higher premiums in the form of emergency assessments if a powerful storm strikes the state, company officials explained Thursday.
Officials from Citizens, the state-run property insurer, gave the Florida Cabinet an update of the company's finances, outlining how prepared they are for the hurricane season, which began June 1. They also explained that, while Citizens has sufficient reserves for a smaller storm, it couldn't cover the likely losses from a Hurricane Katrina or Hurricane Andrew-type storm.
Citizens currently services 1.36 million policies throughout Florida, and has a surplus of $5.7 billion. It can also tap into nearly $3 billion in bonds and $5.6 billion in reinsurance if necessary. Throw in Florida's catastrophe trust fund, and Citizens can pay out damages for nearly $15 billion.
But a one-in-50-year event, the equivalent of a Hurricane Andrew, which struck South Florida as a Category 4 storm in 1992, would exhaust those reserves, resulting in regular, one-year assessments for its customers, as well as emergency assessments that could last up to 10 years or more.
Agriculture Commissioner Adam Putnam suggested that the greater threat to Florida -- and Citizens' customers -- isn't one massive storm, but multiple storms hitting the peninsula over the course of hurricane season, which stretches from June through November. Citizens officials agreed.
"In a scenario where you have three storms in over a year, you might have regular assessments," said Susanne Murphy, chief administration officer for Citizens.
The scenario has already happened, as Citizens are paying a 1 percent emergency assessment over the damages incurred by several storms in 2004 and 2005. The charge will remain in place until 2017.
Gov. Rick Scott seemed particularly interested in the status of Citizens, asserting the need to get the private market to return to Florida. Many insurers left after Hurricane Andrew, and more have defaulted in recent years as a result of the downturn in the economy.
"It's not the insurance company of last resort like it was meant to be," Scott said.
State statutes allow Citizens to charge rates unrelated to actuarial tables, unlike private insurers. Combined with a three-year rate freeze imposed by former Gov. Charlie Crist in the aftermath of the 2004 and 2005 storms, the rates have been tilted in Citizens' favor and homeowners have flocked to the state-run insurer.
Now Citizens' rate hikes are limited to 10 percent each year, but are still not connected to actuarial tables, as private insurers are required to do. Scott recently signed SB 408, which allows private insurers to raise rates 15 percent to recoup the cost of reinsurance. But that may not be enough to level the playing field with Citizens.
The new law also imposes new regulations on sinkhole coverage, attempting to tackle sharp increases in sinkhole claims that have driven up rates despite a lack of major storms in the past five years. From 2002 to 2010, Florida insurers took in $272 million in sinkhole premiums, but paid out $878 million in claims. It may take several years, however, for the law to have an impact on the market.
"It's going to take a couple of years for the loss experience to cause changes in the market," said Christine Ashburn, director of legislative and external affairs for Citizens.