Confused and angry, some Citizens Property Insurance policyholders charge that the state is using a "sneaky" ploy to move them out of the state-run insurer into questionable start-up companies.
Their concerns have prompted consumer advocates and insurance industry observers to issue a warning: Do your homework.
Since January, Citizens policyholders have increasingly received letters from small, private insurers stating that unless the homeowners "opt out," their policies will automatically be transferred from the state-run company to a private firm.
Bill Newton, executive director of the Florida Consumer Action Network, says homeowners should not simply take whatever company is handed to them without thoroughly researching the firm. He added that the Office of Insurance Regulation must do its job to ensure that any company taking policies out of Citizens is sound.
"They need to be thoroughly vetted by OIR, especially now with the problems on Wall Street," Newton said. "Homeowners have a responsibility to shop around."
Former Rep. Donald Brown, R-DeFuniak Springs, an insurance agent who was the 2008 House Insurance Committee chairman, says the Citizens policyholders are right. Brown, whom some criticize as favoring large insurers, said the state created the "opt out" provision as a way to ensure wide participation. It requires action by homeowners that many may not take before it is too late.
"There has been, in my opinion, a strategy over the recent past to move risk as an overall political strategy," Brown said.
Homeowners say the opt out letters look like junk mail from an insurance company seeking your business, not a notice of a significant change in their homeowners insurance coverage.
"I thought it was very sneaky the way they did this," said Richard Mead, a 48-year-old computer consultant in Clearwater. "I've just been changed to a small insurance company, which really makes me nervous. I have no idea what their credibility is. I'm switching back to Citizens."
Retired schoolteacher Vicky Jones of Clearwater couldn't be angrier about the takeout process. She said she and her daughter, who is disabled, were fine with Citizens for coverage of their two houses.
But since Jones and her daughter received takeout notices, she has been spending weeks trying to "opt out."
"Why should this be such a hassle to me, when I made my decision back in June when my insurance expired and I paid for Citizens?" Jones asked. "It should not be somebody else's choice about my home being insured. It should be my choice."
Jerry Grimes, a 50-year-old sales manager from Tampa, was switched to a small insurer but wants to go back to Citizens. "I think it's pretty much a poor way of doing business.
"I'm very disappointed that a state-run program would be so irresponsible. I don't want to find out down the road that one of these smaller companies goes belly up."
Ten of the 14 companies that have been approved to take out hundreds of thousands of policies from Citizens this year received grades of "D" and "E" from TheStreet.com's rating division, formerly the Weiss Rating service, an independent firm. The U.S. General Accountability Office has ranked the rating company No. 1 among rating services for its accuracy.
Rating service A.M. Best also added takeout company Argus Fire & Casualty Insurance Co. to a list of seven companies "under review with negative implications." Argus received a "D" from TheStreet.com, ranking it "weak" for fiscal stability.
Part of the concern by rating agencies is the backup insurance held by the companies. The Florida Hurricane Catastrophe Fund, which warned in October that the world economic crisis is limiting its access to money, holds part if not all the reinsurance for the takeouts.
In a letter to the St. Petersburg Times, Tom Zutell, a spokesman for the Office of Insurance Regulation, said a Times story last week about low grades from TheStreet.com's ratings "was irresponsible and may have caused unnecessary anxiety among Citizens' policyholders contemplating a takeout offer. Insurance Commissioner (Kevin) McCarty would never allow a financially unsound company to remove policies from Citizens."
Zutell said Florida has some of the most stringent licensing requirements in the nation.
The law also requires new residential property insurers to have the greater of $5-million or 10 percent of total liabilities in surplus when they are licensed, but Zutell said Florida regulators have required double that for most new companies.
Brown disagreed about the companies' fiscal stability. "They're very thinly capitalized; they're very vulnerable to a major storm. These small companies rarely buy reinsurance through anything but the Cat Fund. The last report said the Cat Fund is $14-billion in the hole in their finance plan."
Added Lynne McChristian, a spokeswoman for Insurance Information Institute, a New York organization that provides information and analysis about the insurance industry: "Some of these takeout companies have not been tested. The key point is we've had three seasons without hurricanes. It's given those companies capital, but is it enough?"
Ivan Penn can be reached at email@example.com or (727) 892-2332.