Bruce Douglas steps down Thursday as chairman of Citizens Property Insurance Corp.'s board after reversing the misfortunes of the largest state-backed homeowners insurance company in the United States. His replacement, James Malone, was named last week. Douglas, 73, talked to the Times about his six-year tenure at Citizens, his misgivings with Tallahassee politicians and what lies ahead for the company's 1.2-million policyholders.
It's often said that the root of the Florida insurance problem is that rates were too low to begin with. Do you agree?
Rates have been subsidized since Hurricane Andrew. So when we got storms in 2004-05, people accustomed to paying a $600 premium faced a $2,000 premium and they went ballistic. But $600 wasn't even close to a realistic rate.
Does the Legislature blame themselves for that? Never. For the first six months I was on the job, they blamed Citizens. I kept making speeches that the problem is hurricanes and we lulled ourselves in that 12-year period after Andrew. And then reality set in.
Citizens was taking a lot of heat from the media when you arrived, including charges of mismanagement and woeful claims handling. How did you handle that?
A lot of the criticism was deserved. But there were legislators saying Citizens was a disaster, beating on us without gaining the facts. In the six years I was there, only a handful of legislators ever sat down with us and asked what we needed, what the problems were. Sen. Jeff Atwater (R-North Palm Beach) and Rep. Dean Cannon (R-Winter Park) were two of them. (Florida CFO) Alex Sink was the first Cabinet member who visited with me.
Between 2002 and 2005, no effort was made to build the organization to handle claims of any magnitude. Then in late July of 2004, four storms hit and we had no claims adjusters locked up. Five people were supervising hundreds of thousands of claims. We now have 68 supervisors and contracts with 5,000 adjusters who have been trained by Citizens.
The Florida Hurricane Catastrophe Fund has drawn a lot of attention lately, and Citizens' reliance on the fund has many people worried. Is that valid?
If the Cat Fund couldn't exist, Citizens couldn't exist. When CFO Sink tried to reduce the Cat Fund exposure by $3-billion, the Legislature didn't act because premiums would have gone up a little. But people would've accepted that if we'd said we were reducing the likelihood of assessments.
The ($28-billion) Cat Fund exposure is totally inappropriate. It makes no economic sense. The Legislature did that, not the Cat Fund. Many larger (insurance) companies did not take advantage of the Cat Fund, with the exception of Citizens.
In order to have the money to pay claims, you've said Citizens needs to charge an adequate rate. But the Legislature froze your rates until 2010. Can Citizens remain sound without raising rates?
Price controls have never worked in the history of man because, at some point, you're going to have to pay the piper. We recommended a three-year strategic plan that Citizens raise its rates no more than 10 percent each year. That way people can plan and budget. The Legislature didn't go for it this year, but they can change that.
Citizens assesses its own policyholders first to make up a shortfall, and if those assessments don't cover the deficit, Citizens can impose a surcharge of up to 6 percent a year on all insurance policies in the state. How much more financially secure is Citizens now compared to four years ago?
We had no surplus (cash on hand) in 2005. We were wiped out, a $1.7-billion deficit. But the surplus projected for the end of this year is close to $4-billion.
On top of that, we went out in January and got various forms of pre-event financing, so that today, we have the capacity to pay $10- to $11-billion in claims. In all of the eight storms of 2004-05, we paid about $6-billion in claims.
Sink and others have said Florida is better off with dozens of smaller, newer companies taking a fraction of the risk, rather than a few big companies taking most of it. Do you agree?
I think it makes all the sense in the world, provided the smaller companies have been through the oversight to make sure they're well capitalized, to make sure we don't have a recurrence of what happened in Tampa (with the Poe insurance companies). Does (the Office of Insurance Regulation) have the fight? The capability? Many of these smaller and mid-sized companies are well run and well capitalized, and some are not.
Where do you see Citizens five or 10 years from now?
In business, that's for sure. The high-risk (coastal) account has the same 400,000 policyholders as 12 years ago because no (private companies) have been forced to take them out. It would not surprise me if we hung in at a million policyholders five years from now.
Does the public understand what Citizens is and what it does?
More and more every day. People get it. Lincoln was right. You can't please everyone. But we are delivering what we say, responding to tornadoes within 24 hours, paying the claims fast and fairly.
At times it was difficult because you run into a Legislature that waits until the last minute every year to address insurance. Like right now, we should be having working sessions with legislators.
You're moving on to help your son with his capital management company. Will you be on call if needed?
Years ago, when I was in charge of executive trainees at Sears, I gave each of them a dime and told them if they needed me, they should call me. I still feel the same way — although phone costs have gone up now, and I'm not giving everybody a buck to call me.
Tom Zucco can be reached at email@example.com or (727) 893-8247.