Sept. 04--Florida's state-run and biggest insurer is pushing back against a consumer advocate questioning a proposed 3.2 percent rate hike -- including hundreds of millions of dollars billed to customers for back-up coverage from private offshore companies.
"Risk transfer through reinsurance is a critical part of Citizens' mission," wrote John Rollins, the chief risk officer of Citizens Property Insurance Corp., in a letter Wednesday to state insurance consumer advocate Sha'Ron James.
"Both our policyholders and all insurance-buying Floridians should expect that the premium they pay up front represents the entire cost of the protection they receive, without the uncertainty or surprise of post-storm assessments," Rollins said.
Despite a decade with no hurricanes, reinsurance costs are one reason why Citizens says average bills need to go up, including 4.6 percent in Palm Beach County. A year ago, Citizens slightly lowered overall premiums. Now company officials blame water-damage claims in South Florida as a pressing issue driving the hike.
Offshore reinsurance costs -- about 10 percent of each premium dollar, a company spokesman said -- did not exist at Citizens five years ago.
The company says it sought deals to avoid assessments or "storm taxes" to Citizens customers and those of other Florida insurers after big, rare storms.
James, who took over as state-paid advocate last month, called for careful scrutiny.
"I urge the Office of Insurance Regulation to strongly consider the impact of Citizen's reinsurance program" as well as debt-financing deals and water-loss claims, James wrote to insurance commissioner Kevin McCarty Monday. She asked for a close look at whether the reinsurance plan "exceeds the level of adequacy needed to fulfill its obligations."
Money paid to reinsurers in Bermuda or Europe stays in their pockets if short-term contracts are not tapped. In contrast, money added to the Citizens surplus of more than $7 billion grows in storm-free years and remains available to pay claims.
Rollins defended the strategy: "In 2015, for the first time in its history, Citizens has secured enough reinsurance, at historically low rates, to blunt the possibility of assessments even in a benchmark severe event, known as the '100-year storm.' "
He continued, "Better yet, much of this $6.9 billion in protection kicks in more often for smaller storms, such as a named storm with a 10 percent chance of striking each year, and it covers the case of multiple storms in a season."
As for assessments after a storm, many people do not realize they can happen, Rollins said.
"Studies have shown that, despite many educational efforts, most consumers are unaware of the possibility of post-storm assessments in the event of a Citizens deficit," he said. "Such assessments would also arrive at the worst possible time, during recovery from a major storm after they have already paid deductibles and other uninsured storm costs."
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