Tallahassee, Florida - Citizens Property Insurance Corporation is moving ahead with a controversial plan to try to encourage private insurers to take over a chunk of Citizens' policies.
The state-operated insurance company is ready to pay out as much as $350 million in loans to private insurers as an incentive for them to take responsibility for some of Citizens' 1.4 million policies.
Citizens hopes the plan will reduce its business by 300,000 policies over the next two years.
The company has been searching for ways to reduce its risk. Under the proposal, Citizens would offer private insurers low-interest loans of up to $50 million for taking control of Citizens' policies. The loans could be paid back over 20 years.
On Friday, members of Citizens Board of Governors tentatively approved the plan. They admitted the idea was controversial but said it could help boost the private insurance market.
"I think the program's concept is extremely strong and I would go so far as to say that it has the potential to spark a renaissance in the Florida property insurance market," said board member John Rollins.
Board Chairman Carlos Lacasa said the board's depopulation committee will take another look at the plan before the full board considers giving it final approval.
"This program is the first time that Citizens commits its own capital to depopulating with private companies. So it's controversial. There's a lot of apprehension in the public about the use of Citizens' capital for this purpose so we have to take every precaution."
Board member Carol Everhart urged her colleagues to hire private attorneys to vet the plan.
"I do have concerns and if we go forward I would certainly like outside counsel's opinion on this."
Any private insurer agreeing to participate must:
• Renew the assumed policies for at least 10 years after the expiration of the current policy term.
• Limit rate increases, for renewal offers from January 1, 2013, through January 1, 2016, to no more than 10 % per policy per year (consistent with Citizens' current 10% glidepath).
• Provide substantially the same coverage for the first three years as that provided by Citizens.
Citizens, now the state's largest property insurer, is making progress in shedding policies. As part of a separate deal, four private insurance companies will take over 150,000 policies from Citizens starting in November.