Ever since state lawmakers recognized the need for a residual market to provide Florida residents in high-risk areas with homeowners' coverage, the guiding public policy position has been that major losses would be subsidized after the fact in exchange for keeping rates affordable today. In establishing Citizens Property Insurance Corporation — and its predecessors — lawmakers created a catastrophic funding plan that depended heavily on policyholder assessments to pay claims and fund bonds and other debt instruments to pay off long-term deficits. Due to a confluence of events, namely a lack of major hurricane losses, the use of assessments remained a theoretical proposition that lawmakers and the public could largely ignore. However, after the 2004 and 2005 hurricane seasons, the need for Citizens' assessments has become a financial reality and what seemed like a good idea yesterday has become today's crisis.

Losses and Assessments

The possibility that Citizens would require a major assessment to fund 2005 hurricane losses was almost guaranteed after the 2004 hurricane season. Hurricanes Charley, Frances, Ivan, and Jeanne by far represented the largest financial hit sustained by residual insurers. All told, the four hurricanes accounted for an estimated total of $2.4 billion in losses. Of that amount, $1.8 billion was attributed to losses in Citizens' high-risk account, which provides wind-only coverage to residences built along the state's coastline. The high-risk account has some 450,000 policies in force with 280,000 of those policies located in Palm Beach, Broward, and Miami-Dade counties. As of June 2005, those three counties accounted for 47 percent of Citizens' total policies, and represented 56 percent of its total exposure.