Florida property owners received their property insurance bills and found the line item “FL HURRICANE CAT FUND PREMIUM RECOUPMENT”.
When Watchdog Wire asked Citizen Insurance: Is this recoupment a tax increase on all homeowners? The reply was, “Yes, all Floridians assume the potential for assessments should Citizens run into a deficit situation.”
Unlike private carriers Citizens is not able to manage risk and reduce policy counts to manage such risk. As an insurer of last resort, created by Florida statute, Citizens must write most risks that apply for coverage.
This “recoupment” is a tax on every Florida property owner.
According to Citizens Insurance, “Citizens may levy an Emergency Assessment when Citizens incurs a deficit in any year and that deficit exceeds the amount to be collected by the Regular Assessment.” See Florida Statue 627.351(6).
That means that assessable policyholders could be assessed a maximum of 30 percent of assessable premium if there is a deficit in each of the 3 Citizens accounts. The Emergency Assessment can be spread over multiple years as was done in 2012.
The total dollar amount for the Citizen “emergency assessment” is $887,502,331 to be collected over a 10 year period. The original assessment was 1.4% but reduced to 1% by the Citizens Board of Governors. The assessment was discussed and approved by the Citizens Board of Governors at a publicly noticed meeting. The assessment was also approved by the Florida Office of Insurance Regulation.
Citizens is responsible for paying hurricane and other covered claims to its policyholders. If Citizens funds are depleted after a catastrophic event, resulting in a deficit, assessments are levied. This ability to levy assessments provides Citizens with resources to pay claims after an event.
Below is a summary of the assessments and the order in which they are levied:
· Citizens policyholders are the first to be assessed if a deficit occurs.
· The policyholder surcharge is levied only on Citizens policyholders and is a one-time surcharge.
· This assessment can be up to 15 percent of premium for each of Citizens’ 3 accounts. The assessment is levied for any account that has a deficit. That means that Citizens policyholders could be assessed a maximum of 45 percent of the policyholder’s premium if there is a deficit in all 3 of Citizens accounts.
· If the Citizens Policyholder Surcharge does not cure a deficit, additional assessments will be levied based on the account type:
o Coastal Account – Regular Assessment
o Commercial Lines Account (CLA) or Personal Lines Account (PLA) – Emergency Assessment
· A broad base of licensed Florida property and casualty insurance companies, including property and automobile insurers are assessed if a deficit remains.
· Companies must remit their portion of the Regular Assessment to Citizens within 30 days of a levy. They may recoup the assessment amount by passing it on to their policyholders.
· Insureds who purchase coverage from surplus lines insurers are also subject to the regular assessment.
· If there is a deficit in the Coastal Account, an assessment of up to 2 percent of premium or 2 percent of the deficit in the Coastal Account can be levied against assessable insurers and their policyholders.
· This assessment is a one-time assessment.
· Citizens policyholders are not charged this assessment.
· If the Citizens Policyholder Surcharge and the Regular Assessment do not cure the deficit in the Coastal Account, an Emergency Assessment will be levied.
· A broad range of property and casualty policyholders, including Citizens policyholders, are assessed directly by their insurance companies. Insurers collect from their policyholders and forward to Citizens.
· For each of the 3 Citizens accounts, this assessment may not be more than 10 percent of the policy premium or 10 percent of the remaining deficit, whichever is greater.
According to the September 2012 Citizens Property Insurance Corporation rate hearing, “Citizens lost nearly $1 billion on sinkhole losses occurring in 2007-2011 with a loss ratio for sinkhole business for 2011 of 877%. This created net loss for the PLA for year ended 12/31/11 and resulted in less financial resources to pay for future hurricanes.”
Florida property owners gird your loins – another emergency assessment is on its way and it looks like a huge Sinkhole!