A proposal to allow surplus lines insurers to take policies out of Citizens Property Insurance Corp. passed its first committee Tuesday, but not before lengthy and pointed exchanges between supporters and vocal industry critic Sen. Mike Fasano, R-New Port Richey.
Sponsored by Sen. Garrett Richter, R-Naples, chairman of the Senate Banking and Insurance Committee, the bill (SB 578) would allow surplus lines companies, which are not regulated by the Florida Office of Insurance Regulation, to take policies out of the state-backed insurer that now handles 1.5 million policies. Policyholders would have to agree to the switch and could change their minds later.
Richter and others say the bill is needed to help reduce the number of policyholders in Citizens, which now faces nearly $500 billion in potential losses in the event of a major storm. The company has grown as more private insurers jettison policies in hurricane-prone regions, making Citizens, with below-market rates, often the only insurer willing to take on customers in those areas.
"I think we need to reduce the size of Citizens and return it to an insurer of last resort," Richter said before the bill passed on a 7-3 vote.
Critics, however, say the push to move policyholders to surplus lines carriers is shortsighted and could leave policyholders without coverage when they need it.
Unlike traditional carriers, surplus lines are typically offshore companies that in large part don't fall under state regulation. Historically, they have offered policies to property owners willing to pay higher premiums for insurance on property no one else would cover.
"We're talking about allowing unregulated insurance companies to come here and offer policies to homeowners," Fasano said. "We're not talking about commercial plans; we're not talking about master plans for condominium associations or shopping centers."
Backers say the bill has adequate protections by bolstering financial requirements for the companies. The bill would require surplus lines companies to have $50 million in reserves to handle claims, up from $15 million now required.
Sen. Mike Bennett, R-Bradenton, said the bill allows policyholders to refuse to accept the switch to surplus lines carriers. Policyholders who do switch can also return to Citizens if they choose.
"What a sweet deal," Bennett said. "I get to change. If I don't like it, I can go back."
A frequent insurance industry critic, Fasano said he is more concerned about the precedent the bill sets. Though it's now voluntary, he worries about those who may want to make such a switch mandatory.
"I have great concerns over what the governor wants to do and others want to do," Fasano said. "I have great concerns that there is a movement under way to eventually force people out of Citizens whether they want to or not."
