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Assessments: Various State Property Assessments as of November 19, 2008 |
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11/19/2008 |
From briefing materials for new House members, November 2008
PROPERTY INSURANCE POLICY ASSESSMENTS
Florida Hurricane Catastrophe Fund (FHCF or Fund)
The Florida Hurricane Catastrophe Fund assessment is authorized by law (s. 215.555(6)(b)1., F.S.) and is triggered when the Fund incurs a deficit and has to bond to pay its claims (i.e. runs out of money/premiums it collects from insurance companies to pay its claims). The fund had a $1.425 billion deficit due to the 2005 hurricanes resulting in a 1% assessment for eight years against all property and casualty insurance policyholders except workers' compensation and medical malpractice. The assessments are paid starting January 1, 2007 and can be passed through to policyholders upon approval by the Office of Insurance Regulation. This is the first time the Fund has had to bond to cover a deficit since its creation in 1993. The statutory authority to assess property and casualty policyholders to cover the Fund's bonds was put in the law when the Fund was created in 1993.
Florida Insurance Guaranty Association (FIGA or Association)
When a property and casualty insurance company becomes insolvent, the Florida Insurance Guaranty Association (FIGA) is required by law to take over the insurance company and pay the claims of the company's policyholders. This ensures property owners in Florida that have paid premiums for homeowners' insurance are not left without valid claims being paid. FIGA has money in reserve to pay claims, but if its reserve is insufficient to pay all the claims, FIGA can issue two types of assessments against property and casualty insurance companies regular assessments and emergency assessments. The assessments are levied to make up the difference between what FIGA has in reserve and how much it owes on claims. FIGA assesses insurance companies directly for both assessments and the insurance company is allowed by law (s. 631.57(3)(a), F.S.) to pass the assessment on to their policyholders. One insurance company became insolvent as a result of the 2004 hurricane season and an entire insurance group became insolvent after the 2005 hurricane season. These insurer insolvencies caused FICA to issue three assessments against property and casualty insurance companies two regular assessments and one emergency assessment.
In June 2006, the Association determined it needed to request a regular assessment of 2% to pay claims of insolvent property insurers, specifically the three insurers that became insolvent due to the 2005 hurricanes and whose claims were estimated to total $239 million. The Association only had $35 million so needed funding to avoid a deficit. The Office of Insurance Regulation reviewed the need for the assessment and supporting documentation and approved the 2% regular assessment. The property and casualty insurers paid the regular assessment by July 21, 2006 and have passed it on to their policyholders. The statutory authority for the Association to impose a regular assessment (s. 627.57(3)(a)) has been in the law since 1970. Although it has infrequently been used, it was used to issue assessments to pay the claims of insolvent insurers in 1993 after Hurricane Andrew. The regular assessment is a one time only one. However, the Association can request the assessment be imposed again if it needs more money at a later date.
In December 2006, the Association determined it needed to request an emergency assessment of 2% to pay claims of the same three insolvent property insurers. The Association estimated it needed another $232 million to pay the claims. The Office of Insurance Regulation reviewed the need for the assessment and supporting documentation and approved the 2% emergency assessment. The property and casualty insurance companies paid the assessment by January 31, 2007 and are now passing it on to their policyholders. The statutory authority for the Association to impose an emergency assessment of up to 2% to pay claims from the 2004 and 2005 hurricane seasons was passed in 2006 in SB 1980, the property insurance bill. This authority, however, is similar to the law enacted by the Legislature in 1992 allowing the Association to pay claims of insurers that became insolvent after Hurricane Andrew. The emergency assessment is one time only. However, the Association can request the assessment be imposed again if it needs more money at a later date.
In October 2007, the Association again determined it needed to request a regular assessment of 2% to pay claims of insolvent property insurers. The Office of Insurance Regulation reviewed the need for the assessment and supporting documentation and approved the 2% regular assessment. The property and casualty insurers paid this regular assessment by November 30, 2007 and have passed it on to their policyholders. This assessment is a one time only one. However, the Association can request the assessment be imposed again if it needs more money at a later date (like it did for this assessment).
Citizens Property Insurance Corporation (Citizens)
Citizens has levied three assessments as a result of the 2004 and 2005 hurricanes. Section 627.351(6) authorizes Citizens to levy assessments on its policyholders and all other homeowners with property insurance to defray deficits in the corporation. By law, Citizens can issue two types of assessments against homeowners a regular assessment and an emergency assessment. Citizens' assessments are paid by the insurance company which can pass them through to their policyholders (non Citizens homeowners).
As a result of the 2004 hurricanes, on August 17, 2005 Citizens levied a one time 6.8% regular assessment on insurance companies and Citizens' policyholders. It is likely most, if not all, insurance companies passed this assessment through to their policyholders at their policy issuance or renewal after August 17, 2005. This assessment was needed to defray the deficit Citizens incurred due to insured property losses being greater than their surplus. Prior to the 2004 hurricane season, Citizens had a surplus of about $1.8 billion. Citizens' claims losses related to the 2004 hurricane season amounted to more than $2.4 billion, depleting its entire surplus and causing Citizens to incur a $516 million deficit.
As a result of the 2005 hurricanes, Citizens levied a one time 2.04% regular assessment on insurance companies and Citizens' policyholders. It is likely most, if not all, insurance companies passed this assessment through to its policyholders at their policy issuance or renewal after September 14, 2006. Citizens started the 2005 hurricane season with approximately $187.7 million in surplus. Due to the 2005 hurricanes, Citizens sustained a deficit of almost $1.8 billion. In the 2006 Legislative Session, the Legislature appropriated $715 million to defray the Citizens' deficit associated with the 2005 hurricanes, making the deficit amount passed on to property owners in Florida over $887 million. To cover the deficit, in addition to the one time regular assessment of 2.04%, Citizens levied an emergency assessment 1.4% for 10 years. The 1.4% emergency assessment began being charged to homeowners, including homeowners insured with Citizens, when policies were issued or renewed on or after July 1, 2007 and will be charged each year for 10 years.
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