Florida’s insurance agents are advising consumers seeking coverage from Citizens Property Insurance Corp. to proceed cautiously, especially for those making comparisons with the private market.
Coverage in the state insurer of last resort may not always be the wisest choice for every homeowner, according to the Florida Association of Insurance Agents (FAIA).
“It’s certainly an alternative, sometimes the only alternative,” said Jeff Grady president and CEO of the FAIA. “But there are considerations regarding policyholder assessments and coverage.”
Grady warns that, depending on a family’s unique insurance needs, gaps in coverage could be significant and policyholder assessments for deficits are both more likely and higher than with standard carriers.
While homeowners in high-risk areas may have few, if any, private market options, many consumers who could purchase private insurance are clamoring for Citizens without always considering the consequences. Agents say that’s due to the mistaken belief that Citizens’ coverage is always comparable and costs less.
“The reality is that Citizens offers a one-size-fits-all policy that often leaves coverage gaps and there is a higher probability that assessments could wipe out any perceived savings,” said Grady.
One potential coverage gap: under a Citizens policy, personal property coverage for all personal belongings, which includes all furniture, electronics, clothing, and household goods, is limited to 50 percent of the home’s value. That may be enough, according to Grady, but most standard market companies allow the limit to be increased; Citizens does not.
Another example is additional living expense coverage, which pays if a policyholder can’t live in a home after it is damaged. Citizens’ maximum is half that of many private carriers. It reimburses only up to 10 percent of the home’s value while many, but not all, private companies provide 20 percent. For example, if the structure is covered for $150,000 and is declared a total loss, Citizens will pay only $15,000 if a policyholder has to live elsewhere while a home is rebuilt. Many private companies would have paid $30,000, according to Grady.
Other potential coverage gaps under Citizens: Liability coverage is limited to $300,000 no matter how much it costs the policyholder in court or how much the final judgment is.
Medical payments are limited to $2,000, which means policyholders must pay out of pocket if a guest is injured in their home and medical costs exceed the coverage limit.
For home-based businesses, no coverage is available for outside business pursuits. Animal Liability also isn’t available. So, if a family pet bites or injures someone and the family is sued, policyholders must pay all defense costs and any judgment. Lawsuit coverage for libel or slander also is not covered, Grady added.
FAIA pointed out that less coverage is only one reason for consumers to move slowly with the state-run insurer. In the event that storms drain Citizens’ reserves as they did in 2004 and 2005, Citizens’ policyholders could be surprised.
According to a consumer report by the FAIA titled Citizens Assessments, there’s also a hidden cost due to potential deficits. The report explains that during the 2006 legislative session, lawmakers changed the approach for funding deficits in any one or all of Citizens’ three accounts. Citizens’ policyholders will now pay before private market policyholders, beginning in 2008. They also are divided into two categories: homestead and non-homestead, with non-homestead Citizens’ policyholders paying each time there is a deficit for any or all three of the Citizens’ accounts.
The report cautions consumers thinking about Citizens to consider the following:
1.) If there is a deficit in any account of Citizens, Citizens policyholders will pay substantially more in assessments than those insured in the voluntary market who, in most instances, won’t have to pay anything.
2.) Since the voluntary market assessment base was expanded to all lines (except medical malpractice and workers’ compensation), including auto and excess and surplus lines, any assessment of the voluntary market will pale to those levied against a Citizens policyholder.
Grady says that the counsel of an insurance agent is the best way to make certain a Citizens policy is comparable to that of private carriers. That’s why he’s urging everyone to take the time to read their policies and consult with their agents.
“Our agents are working hard to inform customers about the potential increased risks with Citizens,” said Grady. “When you have government proclaiming that Citizens is the answer, it can sometimes be difficult to get that message across.”
Source: Florida Association of Insurance Agents
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