Ending a three-year rate freeze, the board of state-run Citizens Property Insurance approved raising rates for most policyholders by 10 percent next year.
After a heated debate Wednesday, Citizens also agreed to cap any rate cuts at 10 percent as well, rejecting a committee recommendation that rates remain frozen for those customers. Only about 80,000 of Citizen's 1 million policies, including some in Pinellas County, would qualify for rate cuts based on computer models used by the insurer.
The state Legislature in its last session said Citizens should be on a "glide path" to gradually raise rates. The long-term goal is to build enough reserves to handle claims from a major hurricane without assessing property owners statewide. But it will take a while to get there: The Legislature capped the maximum rate increase next year at 10 percent.
Without a cap, Citizens policyholders would have faced an average increase of 47.7 percent to bring rates up to an actuarially sound level, according to a Citizens analysis. Put another way: Citizens, which brings in an estimated $2.112 billion in premiums annually, would need to bring in another $1.08 billion to properly cover its financial risk.
With Wednesday's vote, Citizens rates are slated to rise 6.7 percent on average with many paying the maximum 10 percent.
If approved by regulators, the new rates would go into effect Jan. 1.
Although many coastal policies are expected to see rates rise, proximity to the coast isn't the sole rate-setting factor. In fact, one projection by Citizens indicated that many Pinellas County homeowners could actually enjoy the maximum rate cut even as the rest of the bay area faces the maximum 10 percent increase.
State regulators have the final say in approving or rejecting the rate filing. And, unlike private insurers, Citizens does not have a right to appeal the state's decision.
Citizens, which covers homeowners who cannot find coverage in the open market, is entering the heart of hurricane season in "its best shape ever," said chief financial officer Sharon Binnun. It has about $16 billion in claims-paying ability.
Yet Citizens' reserves could be quickly depleted, based on computer models that project losses from one or more major hurricanes. As the state's insurer of last resort, the company is allowed to charge not just its own policyholders but private insurance policyholders statewide if it cannot handle claims from a massive storm.
The 7-1 vote in favor of the rate filing, with board member Tom Lynch objecting, came after board members were sharply divided over how to handle policyholders who would qualify for a rate cut.
Citizens staff had recommended capping any rate decrease at 10 percent to be consistent with the high end of a rate increase. But the claims committee, which reviewed rate issues, recommended no rate decreases. The board voted 5-3 to revert to the original staff recommendation of a 10 percent cap on cuts.
Lynch argued against any rate cut. He said it would hamper Citizens' goal to move toward financial stability, to lower its hurricane exposure and shore up its reserves as it faces an influx of discarded State Farm policyholders. State Farm, the largest private property insurer in the state, intends to gradually pull out of Florida entirely.
"Our Legislature wants us to achieve financial soundness," Lynch said, adding that resisting a rate cut would help that cause.
He reasons that the rate cuts will discourage policyholders from exploring switching to private insurers, a shift that would decrease the state's financial exposure. In other words, fewer Citizens' polices — and more private policies — means less risk for Florida taxpayers.
But board member Carlos Lacasa countered that when someone is entitled to a rate reduction, "we should strive to give them that reduction, not only out of fairness but because that's what the actual rates indicate."
Citizens chairman James Malone recommended the 10 percent rate cut for policyholders who qualify. But he was highly critical of the Florida Office of Insurance Regulation's dominating role in the process. Regulators had previously told Citizens officials that they had no choice but to give at least partial rate cuts to policyholders who were entitled.
"You can phase in decreases," OIR deputy commissioner Belinda Miller told the board, "but I don't think you can ignore them."