The state-run Citizens Property Insurance Corp. wants to make itself stronger by first making itself weaker. The insurer's board voted unanimously Friday to bribe private insurers with $350 million in sweetheart loans to take policies out of Citizens. That means Citizens initially will wind up with less reserves and riskier policies — and that homeowners will pay even higher rates for less coverage while private insurers make out like bandits. It is a flawed strategy that has failed before, and consumers should be outraged by this corporate welfare program.
Urged on by Gov. Rick Scott, Citizens is virtually giving away premium money paid by 1.4 million policyholders in order to shed policies. It reflects the typical Tallahassee thinking that government solutions are always bad and competition and the private market are always better solutions. The problem, of course, is that homeowners are hostages. They have to buy property insurance if they have mortgages, and private insurance remains unavailable or unaffordable — or both — in too many areas of the state.
In fact, Citizens is on a promising path after more than six years without hurricanes. It has a record surplus of more than $6 billion. It has the capability of paying claims from a 1-in-46-year hurricane. And it continues to raise premiums to up to 10 percent a year to gradually build more reserves and get closer to actuarially sound rates. Meanwhile, private insurers are expected to take the most policies from Citizens this year since 2008, including 150,000 by four carriers in November.
Yet Citizens has embraced a new loan program that is too generous to private insurers and has too few protections for consumers. Private insurers could borrow up to $50 million for 20 years at a below-market interest rate of just 2 percent. Yet the insurers only have to agree to take Citizens policies for 10 years, and they can raise policyholders' rates beyond 10 percent a year after three years. If that's not generous enough, there's this: If hurricanes do strike Florida, up to 20 percent of the loan could be forgiven each year for five years.
This is not a new idea. In 2006, the state used $250 million in general tax dollars to make loans to Florida-based insurers who cherry-picked the safest policies and minimally reduced Citizens' risk. In 2008, then-Gov. Charlie Crist vetoed a plan by the Legislature to hand $250 million from Citizens to start-up private insurers. The current governor has no similar interest in protecting consumers, and neither does the Citizens board.
On Friday, the Citizens board rejected efforts to add more protections to the loan plan. One board member even suggested allowing start-up companies to participate. And no public comment was allowed, at least until Sen. Mike Fasano, R-New Port Richey, interrupted on a phone line and asked why the board was so concerned about what the insurance industry wants.
That question went unanswered, but the silence said volumes.