According to conventional wisdom, state-run Citizens Property Insurance has grown into a monster, putting all Floridians at risk of surcharges and assessments if The Big One hits.
But in reality, shaky private insurers are also responsible for triggering surcharges and assessments on all property insurance policies – including auto policies.
Like the near one-percent assessment currently collected by the Florida Insurance Guaranty Association, which covers claims of private insurers who go bankrupt. In four decades of existence, FIGA has paid out $24.2 billion to cover claims from 600 insolvent firms.
Yet we don't hear Gov. Scott and other politicians that love to bash Citizens talk about that.
Instead, all we hear is amped-up rhetoric about potential risks from Citizens, which has become the only option for many South Florida homeowners, and how it needs to shrink. But after seven storm-free years (knock wood), Citizens has built up over $6 billion in reserves, and is now equipped to handle a 1-in-50 year storm without assessments.
In coming weeks, around 40,000 homeowners in Broward and Palm Beach County will start getting "takeout" letters from private insurers which will automatically take over their Citizens' policies on Nov. 5, unless the homeowners decline in writing. With this latest round of takeouts, Citizens hopes to shed around 400,000 of its 1.2 million policies statewide.
The dramatic shrinkage is a prelude to an even bigger change coming in January. That's when a new "clearinghouse" system takes hold: Any Citizens policy up for renewal could be involuntarily shifted to a private insurer – no matter how unproven – so long as the renewal rate isn't more expensive than Citizens.
As part of this shift, a dangerous false narrative has taken hold. It goes like this: Citizens policyholders are subsidized leeches who enjoy below-market rates at the expense of those with private insurance, propped up by assesssments for storm losses that get tacked on all insurance policies.
So imagine my surprise when I looked into the surcharges on my latest insurance policies. Only one was directly related to Citizens. It was for $40, a one-percent annual assessment from the 2005 storm season that's set to lapse in 2016.
All told, my $4,224 Citizens premium (which doesn't seem very "below market" to me for a modest older home) was saddled with $198 in surcharges.
There was the $40 Citizens emergency assessment. There was the $34 FIGA assessment. There was a $2 "emergency preparedness" trust fund fee.
There was a $70 "tax-exempt surcharge" (1.7 percent), which a Citizens spokesman explained is a state-mandated tax that goes toward police and firefighter pension funds.
There was a $52 emergency 2005 assessment (1.3 percent) for the Florida Hurricane Catastrophe Fund. That was the only assessment listed on my latest auto policy (also at 1.3 percent). The Cat Fund, run by the state, provides backup storm coverage to insurers (private and Citizens) who pay annual premiums.
The Cat Fund assessment was triggered after it paid out $9.2 billion to insurers after the 2004-2005 storm years. Of that total, nearly $8.2 billion went to private firms and and just over $1 billion went to Citizens, according to Cat Fund director Jack Nicholson.
The Cat Fund is now responsible for up to $17 billion in coverage. That rankles many free market advocates, who think insurers should depend on private reinsurers for backup coverage. Reinsurance rates have dropped steeply in the last two years.
Nicholson summed up things best when he said the complex world of insurance "is a juggling act." Insurance consumers backstop state-run Citizens and private firms. And the state backstops the private sector.
And if the Really Big One hits, bankrupting private insurers and wiping out state reserves and bonding capacity, Nicholson said, "We're all screwed…What then? The federal government is the ultimate answer."