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Regulators Eye Citizens Insurance Rate Hikes

March 31, 2022 / 10:29 PM EDT / CBS Miami

TALLAHASSEE (CBSMiami/NSF) — Insurance regulators Thursday took up a request by Citizens Property Insurance Corp. to raise rates by nearly 11 percent, as policies continue pouring into the state-backed insurer.

The Florida Office of Insurance Regulation held a three-hour hearing on the request, which, if approved, would begin taking effect Aug. 1. It was not immediately clear when regulators will make a decision on the proposed hikes.

Members of the Citizens Board of Governors decided in December to seek an across-the-board 11 percent rate increase. The actual request is slightly lower than that, with, for example, Citizens seeking an average 10.7 increase for homeowners' "multi-peril" policies — the most-common type of coverage.

Brian Donovan, chief actuary for Citizens, said the average statewide premium for the multi-peril policies would increase from $3,044 to $3,371. But premiums in some areas, such as Southeast Florida, are substantially higher than the statewide average.

The request comes amid a turbulent time in the property-insurance market, with private insurers seeking hefty rate increases and dropping customers because of financial problems. Two insurers, St. Johns Insurance Co., and Avatar Property & Casualty Insurance Co., have recently been placed in state receivership because of insolvencies.

Part of the fallout from the problems is that thousands of homeowners a week are turning to Citizens for coverage. Citizens President and CEO Barry Gilway told regulators Thursday that Citizens, which was created as an insurer of last resort, has about 820,000 policies and will top 1 million policies by the end of the year.

"There's no place for this business to go. Capacity (in the private market) is so limited. … So where does it go? It comes to Citizens," Gilway said.

Gilway said Citizens often charges lower rates than private insurers, putting it in a "ridiculous" competitive position. The requested rate increases are effectively aimed at reducing the gap between the rates of Citizens and private insurers, as a way to try to steer more policies into the private market.

To do that, however, Citizens is seeking approval for a different approach to setting rates. Under state law, Citizens faces an 11 percent cap this year on rate increases, after being capped at 10 percent in the past.

Citizens applied the 10 percent cap on an individual policy basis — meaning that some policyholders could see increases far below 10 percent if warranted. But this year's proposal is designed to make the increases close to 11 percent on a company-wide basis.

Gilway said Citizens has underwriting losses, which essentially involves it paying out more in claims and expenses than it brings in from premiums. That has left it reliant on investment income.

"This (the rate proposal) is an attempt, frankly, to reduce the difference between the average private market rate and Citizens' overall rate," he said.

State leaders have long sought to shift policies from Citizens to the private market, at least in part because of potential financial risks if major hurricanes hit the state. But in parts of Florida, homeowners have little choice but to turn to Citizens for coverage.