TALLAHASSEE, Fla. – Sept. 14, 2015 – Call it the consumer-spooking warning that refused to die.
Private insurers have issued bold-faced warnings of 45 percent storm taxes five months after state-run Citizens Property Insurance Corp. said it would drop a tactic The Palm Beach Post probed.
The warning is on the way out, Citizens officials explained. But it may not disappear from private insurers’ letters until a new round coming up soon. The letters aim to persuade customers to switch from the state-run carrier.
“The language stating that the surcharge could be as high as 45 percent per year is misleading and should not be required,” said state insurance consumer advocate Sha’Ron James.
Offers are quite welcome to most consumers if they get sound coverage for a competitive price. But homeowners have said they felt misled to buy coverage that sometimes costs substantially more out of fear of a devastating 45 percent fee if they stick with Citizens.
“I get that letter, and I’m thinking I can’t afford to pay 45 percent,” John Adinolfe of Palm Springs said this spring. “I switched because I was led to believe I could be facing a 45 percent increase in premium.”
It’s clear the letters have had a big effect. Though acceptance rates have been slowing, takeout offers account for most of the record-setting departures from Citizens that have seen it shrink to the smallest size since its 2002 creation, less than 600,000 policies, down from 1.5 million.
The state-supervised offers are not like ordinary marketing pitches. Homeowners are automatically switched if they do nothing. Gov. Rick Scott vetoed a bill that passed unanimously this spring that would have strengthened consumer protections related to the offers.
Here’s the context the letters do not provide: A storm so bad it happens only once in 250 years – a quarter of a millennium, longer than the nation itself has existed – still would not be awful enough to trigger a 45 percent fee to pay off storm debts, Citizens officials acknowledged to The Post.
People have a far higher chance of being audited by the IRS or having twins or meeting someone with your same birthday in a group of 23 people, the newspaper found.
Citizens said senior company leaders decided to drop the warning in letters Citizens sends shortly before the Post published a story in March. But homeowners said they are still getting the 45 percent warning in letters from private companies nearly half a year later.
“We approve takeout letter language from private companies after (the state’s Office of Insurance Regulation) approves our language,” Citizens spokesman Michael Peltier said last week.” OIR approved the new language that deletes the 45 percent reference on August 21. By that time, September assumptions had gone out already.”
For example, offer notices from Heritage Property & Casualty Insurance Co., which are scheduled to go out in a few weeks, will contain the new language and not the reference to a 45 percent assessment, he said in a statement that an Office of Insurance Regulation spokeswoman confirmed.
Heritage CEO Bruce Lucas said his company follows state requirements and “we don’t control that language.”
In reality, Citizens expects it would probably not need to charge its customers or those of other insurers any assessments at all after a 1-in-100-year storm, far worse than Hurricane Andrew or any other storm to hit modern Florida.
Citizens has more than $7 billion in surplus to pay claims, plus backing from a state hurricane fund and offshore reinsurance. Private insurers in Florida had a $5.8 billion combined surplus plus reinsurance, according to figures provided by state regulators in March.
Moreover, the letters don’t say consumers could be charged another kind of storm tax even if they switch to private companies. That can come from the Florida Insurance Guaranty Association, which backs up private insurers including property and auto carriers and pays their claims if they fail. It happens: Four insurers serving Florida went out of business in 2010, nine in 2011 and one in 2012, requiring billions of dollars in claims to be covered.
Eleven out of 29 companies that took policies out of Citizens became insolvent, were ordered to stop writing business, or were taken over between 2003 and 2009, the Personal Insurance Federation of Florida, representing big national insurers, has noted.
Florida-based insurers say they have the strengthened financial backing to serve customers well. Consumers like Adinolfe say they’re happy to make an informed decision – just not one based on what he called “scare tactics.”
Copyright © 2015 The Palm Beach Post (West Palm Beach, Fla.), Charles Elmore. Distributed by Tribune Content Agency, LLC.