When these two words are spoken, what tends to follow is a wave of frustration and anger for many homeowners and policymakers in Florida. This is because there are two powerful opposing forces that must be weighed and reconciled in order to strike a balance in the best interest of consumers. Consumers, rightly so, want to get the best value at the lowest cost. Yet consumers also need the assurance that when they do make a claim, their insurance company has the ability to pay quickly and in full. While the explanation of the problem is simple, achieving a solution is not.
Added to the debate is the fact that a public entity is the single largest property insurance company in Florida. Citizens Property Insurance Corp. was created in 2002 to serve a small number of high-risk homes that could not obtain coverage through the private insurance market. The intent of the program was to ask all policyholders in Florida to shoulder a fraction of the risk for a few of their neighbors who were in desperate need.
Today, that small risk has ballooned into a mountain of liability that is a serious threat to the economic stability of our entire state. Here's why: Citizens' rates do not cover all of its liabilities. If we have a catastrophic event of the magnitude of another Hurricane Andrew, every person who has a home, auto, or business liability insurance policy will be partly responsible for billions of dollars in claims.
It is with this background that the Florida Legislature asked Citizens to examine its assets and potential liabilities and to work toward closing the gap. We directed Citizens to press toward a goal of becoming more actuarially sound. We understood that this path would likely result in incremental rate increases. We also knew that it is far better to make small payments now in order to prevent massive assessments that could bankrupt our state and devastate our economy. Kicking the can down the road is simply the wrong course of action.
On the road toward an actuarially sound rate, the Florida Legislature put in safeguards to cap increases so that consumers wouldn't be hit with massive bills in a single year. However, during the 2011 session, we gave Citizens increased flexibility and discretion in the area of comprehensive sinkhole coverage, an added benefit that is optional for the majority of homeowners. Due to increases in abuse and fraud, sinkhole claims paid by Citizens far exceed premiums collected, and the company needed new tools to address these inappropriate claims.
However, as a legislator who voted in favor of giving them flexibility, I am deeply disappointed in recent actions taken by Citizens. Instead of striking a balance, it stuck Floridians with dramatic rate increases, in some cases as high as $4,000 per year.
There is no doubt that Citizens faces an imperfect environment. It was designed to be the insurer of last resort, not a company holding the largest share of the market in the state. However, in recommending these exorbitant rates, Citizens apparently focused on historical data and did not adequately consider key components of the new law that should stabilize costs. For instance, the new law incorporates key provisions of the Florida building code, which will help separate legitimate claims from questionable ones.
I believe a more prudent course of action for Citizens would be to reconsider their rate request in light of all the new changes in the law and work with the Florida Office of Insurance Regulation (which has to approve any rate request) to ensure that any rate increase is not excessive.
It is in the best interests of all Floridians to have a vibrant, competitive private market where companies vigorously compete. We will continue to act to unwind the tangled mess that has been in the making for over two decades, and we will do so incrementally in order to ensure that Floridians will be able to sustain the transition.
Rep. Will Weatherford, R-Wesley Chapel, is expected to become the speaker of the Florida House of Representatives in November 2012.