Business

New Citizens Leader Suggests Breaking 10 Percent Cap on Rate Hikes

By: Jim Turner | Posted: June 27, 2012 3:55 AM

Property Insurance

Credit: Shutterstock - sar_38

In office a week, Barry Gilway, new president of Citizens Property Insurance, said he understands the aversion of officials and property owners to large-scale hike rates.

But Gilway, who was hired away from the private Mattei Insurance Services earlier this month with a directive to reduce the risk and size of the state-backed insurance giant, said Citizens can’t remain the most affordable option in Florida.

Appearing before Gov. Rick Scott and the state Cabinet on Tuesday, Gilway said state leaders may need to consider exceeding the state-imposed 10 percent cap on rate hikes as an option to shed many of the 1.4 million policies from what is supposed to be Florida's insurer of last resort.

“You can’t ignore the fact that rate is an issue,” said Gilway after addressing the Cabinet.

Gilway’s comments weren’t warmly embraced by Cabinet members.

Gov. Rick Scott told reporters after the meeting that the state first needs to attract more private insurers and make sure that those buying Citizens coverage understand what they’re getting.

“I’m surprised the survey we talked about in December has not been done,” Scott said.  

Gilway, who noted he is still wrapping his head around the Citizens’ numbers, said Citizens plans to conduct the long-awaited survey in about a week, on what Floridians know about and want from the insurance provider.

The survey, expected to cost under $25,000, will poll about 1,000 people, the number split evenly between policyholders and nonpolicyholders.

Citizens is the state’s largest property insurance company with 1.4 million policyholders, the majority in South Florida and around Tampa Bay.

The state Legislature would have to approve any plan for rates to exceed the 10 percent cap.

In May, among the options presented for Citizens to draw down its customer base, it was proposed that rates for new customers may need to jump an average of 30 percent to help push people to private firms.

“It’s going to be a very, very fine balance act in how we address it. But ultimately my position is we have to address it,” Gilway said. “If we want to pull private insurers into the market place, particularly A-rated insurers … the only way you’re going to attract private insurers is if they believe they have a reasonable chance of generating a return on capital. It’s not rocket science.”

He said Florida doesn’t have to offer private firms the same rate of returns they receive in other states, but they must offer a return.

“They’re not going to knowingly moving into a market place and accept a loss,” Gilway said.

Citizens has until the end of July to make recommendations on rates for the next year.

Gilway said July may be too short a time for a quick turnaround on rate changes based upon the survey results.



Reach Jim Turner at jturner@sunshinestatenews.com or at (772) 215-9889.

Comments (1)

Christian R. Cámara
4:35PM JUN 28TH 2012
Citizens Property Insurance Corp,’s new Chief Executive Officer Barry Gilway deserves credit for his honesty in highlighting the need for higher rates.

Because state law caps Citizens' rates to increases no greater than 10% per year (known as the “glidepath”), private insurance carriers simply cannot compete in Florida. Citizens has the ability to levy enormous assessments (or taxes) on almost every type of insurance policy to make up for any cash shortfalls after a bad hurricane season. Private insurers do not have this luxury--they simply must have enough cash reserves or reinsurance coverage to meet their obligations upfront, as the law requires.

Nobody wants to pay more for insurance, but the current system is unsustainable. Eventually, the state’s economy will take an enormous hit if Citizens has to levy massive taxes to pay people’s claims after a bad hurricane season.

As such, Gilway is right to favor a gradual, moderate approach to getting Citizens’ rates to where it can cover its own obligations without having to tax everyone. An “accelerated glidepath” whereby the current 10% rate cap increases gradually each year until Citizens charges adequate rates is a possible solution. This would allow consumers time to adjust, strengthen Citizens’ finances, and give predictability to the insurance market, thereby attracting more private companies to do business in Florida to provide more consumer choice.

Christian R. Camara
Florida Director
R Street Institute

Leave a Comment on This Story

The content of this field is kept private and will not be shown publicly.
To prevent automated spam submissions leave this field empty.