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Bill to shrink Citizens—and hike rates—passes first committee

Update: After more than a dozen amendments, a bill to shrink Citizens Property Insurance Corp. received a near-unanimous vote in its first committee. The only Senator voting against the measure was Sen. Jeff Clemens, D-Lake Worth.

Sen. Alan Hays, R-Umatilla, a former dentist, described the bill as a shot that a patient takes before an operation. He said it may be somewhat uncomfortable (with higher insurance rates) at first, but will be worth it in the long run by reducing the exposure of the state.

A bill brimming with enticements for the private property insurance industry—and forcing homeowners to pay higher rates to reinvigorate an apathetic market--gets its first full hearing in the Senate Banking & Insurance Committee on Thursday morning.

The proposal, SPB 7018, is a massive insurance reform bill that targets state-run Citizens Property Insurance Corp., but also includes costly side effects for homeowners with private insurers.

Several proposals within the bill allow insurance companies to jack up rates higher and faster, while giving them access to Citizens’ $6 billion cash surplus and the company’s most lucrative policyholders, who would be kicked out of state-run insurance under the bill.

Below are a few proposals within the SPB 7018 that could hit homeowners’ pocketbooks as they prepare to renew their insurance policies in 2013 and 2014.

- Citizens rates “must be actuarially sound include an appropriate risk load factor and not compete with the private market.” Each of those three measures could translate into higher rates for Citizens’ customers, who are currently protected by a 10 percent cap on rate increases.

- Insurance companies may charge higher rates to cover additional reinsurance purchased for a potential catastrophic hurricane. For Citizens’ customers, this could mean an additional 3-percent rate hike (about $65 extra per year, on average), in exchange for the promise of a slightly smaller post-storm “assessment” if a major hurricane occurred.

- Citizens can loan out some of its $6 billion surplus to private companies who agree to take over some of its policies, a move that would leave the insurer with fewer resources in the case of a hurricane and lead to higher rates for those customers who remain with Citizens after a take-out.

- Rates for all homes valued above $300,000, second-home residences and new policyholders at Citizens must be higher than the rate charged by the top 20 private insurance companies, leading to large rate hikes for some in this group.

- Any homeowner with a Citizens policy will be kicked out of the company at renewal if a private insurer offers a policy that is up to 15 percent more expensive than Citizens.

- Citizens’ cap on rates would apply by territory and not by policy, meaning rate hikes could go up much higher for some people than the 10-percent cap currently allowed by law.

 The bill, already ambitious and controversial, was loaded up with proposed amendments before its first committee stop.

Insurance reform proposals are politically difficult in the Florida Legislature, where Democrats and coastal Republicans have joined together in recent years to kill proposals that would raise insurance rates on vocal voters.

There are 4 Democrats and 8 Republicans on the Banking and Insurance Committee. The proposal needs 7 votes to get out of the committee and move forward in the process.