Insurance industry representatives blame the growth of state-run Citizens Property Insurance partly on the fact that the insurer doesn't charge enough to pay for potential losses.
State legislators who voted to freeze Citizens' rates in 2007 and cap annual increases at 10 percent in 2009 figured the insurer — unlike private insurers — can charge fees to offset potential deficits if a major hurricane strikes.
But after five hurricane-free years in Florida, Citizens is holding its own. It reported operating gains of $793.4 million in 2010, $786.8 million in 2009, $585.6 million in 2008, $1.7 billion in 2007 and $3.5 billion in 2006, according to a report released Monday by the Insurance Information Institute, an insurance research group funded by insurers.
The gains allowed Citizens to grow its claims-paying reserves to more than $4.5 billion last year.
Citizens is doing even better than its counterpart in Louisiana, which lost $22.5 million in 2008 and $58.5 million in 2009 before reporting a gain of $47 million last year.
Meanwhile, many private insurers reported premiums didn't keep pace with claims and other expenses in recent years.
The report laments that legislators didn't approve a measure this year that would have allowed Citizens to increase premiums by more than 10 percent a year.
Bob Hartwig, president of the insurance institute and co-author of the report, said Citizens must charge more to prepare for a giant storm. All automobile and property insurance policyholders are subject to paying Citizens' deficits after a major hurricane.
By not charging enough, the report concludes, state-run insurers such as Citizens pose a major threat to taxpayers if major catastrophes strike and they drive away private insurers that can't compete with a government entity that is tax exempt and has the ability to charge fees to nearly all state residents. "Because most of these plans do not charge rates that reflect the true cost of risk, demand for the coverage they provide remains high," the report stated.
Demand is so high that Citizens' policy count has grown 110 percent since it was formed in 2002, to nearly 1.4 million policies this year. Florida's population grew only 12.5 percent over that time, according to census figures.
It also grew by more than 200,000 policies from 2009 to 2010, as predicted, the report says. "The return to higher policy counts came after two Florida insurers were declared insolvent in 2010 and as a number of national companies reduced their exposure to Florida windstorm risk, leaving some high-risk policyholders looking for coverage."