Citizens Assessment Mechanism to be Revised
The legislature passed a bill in the recently concluded 2012 session changing the way Citizens will recover deficits through assessments. The bill was unique in that it enjoyed broad support from the Office of Insurance Regulation, the Insurance Consumer Advocate, Citizens Property Insurance Corporation and the insurance industry. Despite this support, the proposal was in jeopardy on the session’s last day due to a Senate effort to attach Florida Hurricane Catastrophe Fund (FHCF) reform to it. However, the attempt at FHCF reform was pulled, and the Citizens revisions passed.
Historically, the assessments to be levied on the insurance industry have been a two-tiered approach (leaving aside the Citizens policyholder assessments). Upon recognizing a deficit, Citizens would levy a “regular” assessment on participating insurers, which then would have to promptly remit their respective shares of the deficits to Citizens. The insurers then would submit filings to the Office of Insurance Regulation to recoup the amounts of their assessments from policyholders by adding a percentage surcharge into policies over a period of one year or longer. Although the processing for recouping the assessment amounts sounds easy in theory, it created a lot of filing activity for the Office of Insurance Regulation and often proved to be administratively cumbersome for insurers. If Citizens’ deficits were too large to recover solely through regular assessments, it would levy “emergency” assessments in ensuing years. Instead of being paid-and-recouped, the emergency assessments operate simply as surcharges that insurers put on their policies and collect for remittance to Citizens.
In the bill passed this session, the regular assessments will be eliminated for Citizens personal lines (PLA) and commercial lines (CLA) accounts. This means the deficit recovery mechanism will be emergency assessments, which reduces burdens on the Office of Insurance Regulation and the participating insurers. For the coastal account, the legislature could not eliminate the regular assessments altogether due to concerns about ensuring Citizens can meet its potential financial obligations. However, the legislature was able to reduce the regular assessment percentage from 6% to 2%, with further deficits to be recovered through emergency assessments.
The legislature should be applauded for passing this widely supported bill that reduces administrative burdens on the Office of Insurance Regulation and insurers while helping alleviate potential cash flow concerns to the private market that otherwise could have occurred after significant storms.