Article Courtesy of The Palm Beach Post

By Charles Elmore

Published January 11, 2013

South Florida legislators have filed bills designed to stop Citizens from uncapping rates for new customers, but as 2013 begins, the 1.3 million customers at Florida’s last-resort insurer are already getting hit with other moves to reduce coverage and raise bills.

Citizens has sent letters notifying homeowners of lower coverage limits, such as a $10,000 cap on mold damage and standard personal property coverage now set at 25 percent of a home’s value, down from 50 percent. Citizens rates climbed an average of about 10.8 percent Jan. 1.

Meanwhile, Citizens has resisted a new law requiring it to offer a lower-cost, lower-coverage policy called an HO-8 as of Jan. 1. Regulators formally approved Jan. 3 a policy that costs 22.9 percent less compared to a standard HO-3 policy, but after Citizens threatened to withdraw its filing entirely, the state’s Office of Insurance Regulation agreed to make it available only for homes older than 50 years and worth less than $200,000 to replace.

State Rep. Mike Fasano, R-New Port Richey, has objected “that doesn’t follow the intent of the legislation,” which he said was “to allow everyone to have a choice.”

Some lawmakers are responding to another issue — recent attempts to uncap rates for new customers. Miami Republicans Sen. Anitere Flores and Rep. Jose Feliz Diaz filed bills “providing that any restrictions on annual rate increases apply to both new and renewal policies.” HB 107 was filed Tuesday and SB 96 was referred Friday to banking and insurance, community affairs and rules committees.

Citizens board members appointed by Gov. Rick Scott have argued a 10 percent cap on annual rate increases in state law need not apply to new customers, so they could be charged higher starting rates than existing customers pay. The initiative lost some steam after Florida’s Chief Financial Officer and former state Sen. Jeff Atwater advised Citizens that wasn’t what lawmakers intended, but some Citizens officials have continued to insist that’s how they read it.

The new bills are designed to remove any doubt.

The question of intent also arises with the Citizens HO-8 policy. Restrictions on a home’s age and value are not mentioned in HB 1101, which says: “Effective January 1, 2013, the corporation shall offer a basic personal lines policy similar to an HO-8 policy with dwelling repair based on common construction materials and methods.”

Office of Insurance Regulation spokeswoman Amy Bogner said in an email statement, “The law states that an HO-8 policy must be offered. Industry practice/standards use an HO-8 policy for older structures and replacement of the property using common construction materials and methods.”

For example, if a policyholder has a 1920s home and the baseboard has 2-inch-thick wood common during that construction timeframe, but not readily available today, the insurer can pay for the closest modern product and is not required to replace with historic materials, Bogner said.

“The changes made by Citizens to the underwriting guidelines match industry standards for an HO-8 policy, which is what Citizens is required by law to write,” Bogner said.

The HO-8 policy covers some perils that a standard HO3 does — windstorm, fire, explosion, riot, vehicles, aircraft, smoke, vandalism, theft and catastrophic ground cover collapse, according to material provided by state officials. It doesn’t cover others, such as falling objects, weight of ice and snow and accidental discharge of water or steam.

The water discharge peril — such as damage from a broken washing-machine hose — accounted for most of the premium difference, regulators said.

Homeowners with a mortgage need to see what coverage their lender would approve, but some seniors on fixed income with paid-off mortgages say because of rising Citizens rates they have agonized over whether to “go bare” without coverage. The new policy might give them an option between nothing and standard coverage at the full cost to replace a home. It’s not uncommon for a home with a market value of, say, $200,000 to be pegged by insurers to cost $350,000 to replace.

Citizens officials have argued the lower-cost, lower-coverage policy could leave some homeowners paying for unexpected losses later, and also make Citizens more attractive in the process. At Scott’s urging, the state-run insurer is trying to get more customers to move to private carriers.

Citizens is still Florida’s biggest insurer, but it has shrunk from 1.5 million customers to 1.3 million statewide in recent months through “takeout” programs that move customers to private insurers unless they opt out. In Palm Beach County, the Citizens customer count has fallen to about 109,000 from 141,000.