Florida OKs Citizens Rate Increase of 16 Percent on Average

May 22, 2006

Florida residents whose homes are insured by Citizens Property Insurance will see their premiums go up by about 16 percent on average this year, although for some coastal residents the increase will be much higher.

State Insurance Commissioner Kevin McCarty approved an average statewide increase for Citizens homeowner’s policies of 16.1 percent.
For those in the areas with the highest risk for hurricane damage, the average increase will be more than 25 percent.

For mobile home policies the average statewide increase will be 6.7 percent, lower than what the company had sought.

McCarty’s office also rejected a requested increase for some condominium unit policies. But it also approved a requested rate increase of 21.5 percent on average for Citizens’ house fire policies. The increased rates, approved Friday by the state Office of Insurance Regulation, were widely expected, and a recently enacted law means customers of Florida’s insurer of last resort will likely see more increases in the next couple years.

Citizens was created by lawmakers in 2002 to provide hurricane wind insurance for Florida residents who can’t find a private insurance company to cover their houses.

Most coastal residents in the state are now covered by Citizens, as are many mobile home owners. The company is now the second largest insurer in the state, with more than 800,000 policies.

By law, Citizens has to charge more than other insurance companies. That’s because, as a state company it is meant to be an insurer of last resort, not a company people seek out voluntarily. The company’s policies are backed up by all state home owners, when Citizens is unable to pay claims, the customers of other companies are charged to bail it out. This year, after two straight years of shortfalls, taxpayers bailed the company out. Lawmakers agreed to pump $715 million of state money into Citizens to decrease its shortfall and thus lessen the hit on homeowners.

Avoiding future shortfalls is part of the justification for the rate increase for Citizens policy holders.

Property insurance rates have gone up for nearly everyone in Florida after two stormy hurricane seasons and projections for increased hurricane activity in the next several years.

The rate increases were also partly needed because most other insurers have raised premiums, meaning Citizens needs to do the same to make sure it remains the most expensive option. Regulators also say the company’s rates have been too low to reflect the actual risk for several years. That’s led to the company’s shortfalls, which have in turn required assessments on everyone else.

“Our actuarial staff has rigorously examined these rates, and I am confident the approved adjustments achieve adequate rates given the risks involved,” McCarty said.

Citizens Property spokesman Justin Glover said company officials believed the premium increase was “a step in the right direction” of getting rates more in line with the risk of covering Florida homes.

Some Citizens customers already began seeing part of the rate increase in April, the company was allowed to begin raising premiums before it received final approval. Most customers should feel the full effect of the increase by September.

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