After three flat years, the rates charged by Citizens Property Insurance Corp. appear likely to go up sometime in early 2010.

Despite some lingering political opposition, many Republican lawmakers, and just as importantly Gov. Charlie Crist, have conceded the need for Citizens to charge actuarially sound rates as required by state law.

While the 2009 session is far from over, an effort to extend the current Citizens' rate freeze has made little headway so far. The bill filed by State Sen. Mike Fasano (R-New Port Richey), and Rep. Eduardo Gonzalez (R-Hialeah Gardens), would keep in place Citizens' rates until January 2011.

But Crist, who has repeatedly criticized insurance companies for their rates and was instrumental in reshaping Citizens two years ago, said he could accept some type of rate increase for Citizens' nearly 1.1 million customers as long as it was not too big of a jump.

“I don't want rates to go up dramatically, but I also want Citizens to be solvent and protected because a lot of people count on that, my parents included,” said Crist, who is from St. Petersburg. “We just have to go forward in a smart fashion.”

Public outcry over rising property insurance rates prompted Crist and state lawmakers to push for widespread changes during a special session in January 2007. Legislators that year twice froze Citizens' rates and froze them again last year. That rate freeze expires at the end of this year unless lawmakers intervene again.

But in recent months, top Citizens' officials as well as members of a task force set up to look at the state-created insurer have raised concerns about the financial resources of the company. James Malone, the chairman of the Citizens Board of Governors, publicly declared that Citizens' assets could be wiped out in a “few short hours” if a major hurricane slammed into the state.

“We continually take on more risk at a below-market replacement cost,” Malone said. “One can make this situation very, very complicated, provide all kinds of nuances and a number of 'what if, could, would, should,' but the simple reality of the exposure is significant. It is a huge policy mistake, in my view, to trivialize or politicize this statewide exposure.”

Malone noted that if Citizens could not pay off its claims it would be forced to impose assessments on its customers, as well as ultimately most property insurance and auto insurance policyholders in the state.

“If our policyholders have this exposure, then in terms of being able to make assessments, that means essentially that every Floridian has the exposure,” said Malone.

Already Seeking Aid

Even with aggressive attempts to move policyholders into private carriers, Citizens remains the largest property insurance carrier in the state. The insurer provides nearly $400 billion in coverage and has 27 percent of the residential market.

While Citizens has a $3.1 billion surplus, the ability to grow that surplus has been hampered because of wind mitigation credits and a notable reduction in the number of policyholders this past year.

Citizens is also experiencing a high rate of growth in non-catastrophe related claims, especially in claims stemming from broken water pipes. Scott Wallace, president and CEO of Citizens, said in February that he planned to investigate the upward trend of these claims and make recommendations on what to do.

In advance of the 2009 hurricane season, Citizens plans to shore up its finances. During a special meeting in March, the Board of Governors approved a plan to issue up to $2.5 billion worth of bonds. The bonds would be fixed at six percent interest, although the board did give permission to issue variable rate bonds if market conditions improved.

Citizens also plans to explore ways to cut costs, including administrative expenses. But the biggest financial boost for the insurer would be additional rate revenue. Citizens currently plans to submit rate filings in July in order to put in place a series of rate hikes early next year. After the filing, the Office of Insurance Regulation has 45 days to review and establish the final rates that would take effect in January 2010.

Citizens' officials have not publicly disclosed what type of rates they plan to submit to the state, but one group has already come up with a set of recommendations on what those rates should be. Last year, state lawmakers created a task force to make recommendations on what could be done to return Citizens to its role as an insurer of last resort for Floridians. The Citizens Mission Review Task Force recommended that Citizens charge actuarially sound rates, but it also suggested that the company follow a “transition” or “glide path” to those higher rates.

The task force recommended that rates rise no higher than 10 percent a year statewide for all lines offered by Citizens, which includes personal lines accounts, commercial lines accounts, and the high risk account that provides wind coverage to coastal homes, including those east of Interstate 95 in South Florida. The task force additionally recommended that rate hikes be increased no more than 15 percent in any one territory and no more than 20 percent a year for individual policyholders.

Rep. Bryan Nelson (R-Apopka), an insurance agent, has filed a measure for the 2009 session that would adopt that “glide path,” although Nelson's legislation would also mandate that starting in 2011 half of the money raised from the rate hike would be used to pay for homeowner mitigation grants offered by the My Safe Florida Home program.

Fasano Won't Give Up

While many of his fellow Republicans have not embraced his call to extend the freeze for another year, Sen. Fasano is not giving up on his efforts. Fasano said it was wrong to impose rate hikes on Floridians while the state is mired deep in a recession.

“I don't support any rate hikes,” he said. “I support keeping the freeze on until the economy turns around.”

Fasano said it may be a battle to get his bill through the Legislature this year, but he vowed that he would try to attach the language of SB 862 to other insurance bills moving through the process.

“I believe that we need to at least make an attempt, otherwise people who can barely survive in their homes are going to have a tougher time if the freeze is not extended,” said Fasano, who estimated that many homeowners in his home counties of Hernando and Pasco are represented by Citizens.