The Florida Senate sent Governor Rick Scott a bill on Thursday designed to reduce the state's exposure to catastrophic financial losses from a hurricane by gradually steering homeowners away from the state-run Citizens Property Insurance Corp.
The Senate had earlier backed a tougher bill that would have charged new Citizens enrollees much higher premiums, but it backed down after the House of Representatives passed its own measure protecting consumers from price hikes.
The new bill creates a "clearinghouse" to ease customers back into the private insurance market, and phases in a $700,000 cap on property-damage insurance for homes insured by Citizens.
Citizens CEO Barry Gilway called the bill "a great tool in our effort to return Citizens to its original purpose as the insurer of last resort."
Originally envisioned as an insurer of last resort, Citizens has been left holding more than 1.3 million policies, making it the state's largest insurer with about 20 percent of the entire property insurance market.
In recent years, the large private insurance companies have drastically reduced their exposure in the state after Hurricane Andrew hit south Florida in 1992 and following two busy storm seasons in 2004 and 2005.
Florida insurers and homeowners have enjoyed a breather since then with no named storms making landfall, albeit with two near misses - Isaac and Sandy - last year.
Florida property insurance has been one of the most hotly debated and heavily lobbied issues in legislative history.
Some in the insurance industry say Citizens charges below-market rates that unfairly price private insurers out, and have issued dire warnings about Citizens being under funded, as well as the state's Hurricane Catastrophe Fund, which acts as a safety net in case of extreme losses.
Legislators from inland cities also worry that their residents would get hit with premium assessments under the current insurance system if the state's coverage is overwhelmed by damages from a future monster hurricane.
Coastal lawmakers have argued that the state's economy, including construction jobs, banking, real estate values and tax revenue will suffer if their residents can't afford to cover their homes.
"Through the clearinghouse, many policyholders will be able to find more comprehensive coverage at a lower price in the private market," said Citizens CEO Barry Gilway. "That, in turn, reduces the likelihood and amount of assessments all Florida policyholders face in the event of a major storm."
The clearinghouse requires new homeowners to accept coverage by a private company if it offers a rate less than 15 percent more than the rate Citizens currently charges. In the case of Citizens policy renewals, homeowners only have to accept the offer of a private company if it can match the rate.
The current $2 million limit would be cut in half immediately, if Scott signs the bill, and there would then be a year-by-year "step down" provision of $100,000 annually until the $700,000 cap is reached.
"It's a good bill," said Republican Senator David Simmons, who has worked on Citizens through the two-month session. "We're not getting a whole loaf here, members, but we're getting a lot - call it 'Citizens lite.'"
Donovan Brown, regional counsel for the Property Casualty Insurers Association of America, said the state still has a long way to go.
"While the legislation is intended to impede the perpetual and rapid growth of Citizens, much work needs to be done to address the current exposure and rate inadequacy of Citizens," Brown said in a prepared statement issued after the bill passed. "Citizens remains too large and still exposes Florida policyholders to a hurricane tax." (Additional reporting and editing by David Adams; Editing by Sandra Maler)
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