Florida’s Citizens, Regulators Agree to Restrict Eligibility for New HO-8 Policies

Florida’s state-backed property insurer and state regulators have cleared the path for the insurer to begin issuing a new HO-8 policy by limiting it to low-value older homes, addressing concerns that the policies’ low rates could lead to a potential influx of policies into the insurer.

Citizens Property Insurance Corp. was required by law to start making the HO-8 policy available by January. As initially envisioned, the policy was intended to make Citizens less competitive with the private market by offering a more austere policy, although at a significantly lower price.

An HO-8 policy typically provides less coverage than the popular HO-3 policy and pays actual cash value as opposed to replacement cost for damages. However, the HO-8 policy for Citizens became bogged down in controversy when the insurer and regulators could not agree on coverage details, underwriting criteria and rates.

Topping the list of concerns was that the policy would be offered to consumers who qualified for a standard HO-3 all-peril policy at rates roughly 20 percent cheaper, even though regulators required Citizens to offer full replacement coverage to make the policy acceptable to mortgage lenders.

Citizens Board Member Greg Rokeh said at a meeting in December that the policy would prove a draw, not a disincentive for consumers to choose Citizens.

“They are going to flock to Citizens to buy this piece of garbage policy,” said Rokeh.

Regulators then agreed to restrict the eligibility for purchasing the coverage to consumers whose property has a replacement value of $200,000 or less and is 51 years or older.

Citizens Spokesperson Candace Bunker said the new eligibility requirements resolve the insurer’s concern that the policy could attract widespread consumer interest.

“The population of policies that would qualify for HO-8 is that of policies more typically associated with a residual market,” said Bunker. “Accordingly, the potential of targeting policies currently written in the private market is minimized.”

Having resolved the eligibility issue, Citizens and regulators finalized the terms of the policy’s coverage.

In addition to requiring Citizens to offer full replacement coverage despite the fact that traditional HO-8 policies only offer actual cash value coverage, policyholders will also be able to purchase sinkhole coverage at the same rates as HO-3 policyholders. The HO-8 policy, however, will exclude coverage for all water damage.

Bunker said that is the primary reason that the statewide average cost of an HO-8 policy is some 21.7 percent lower than an HO-3 policy.

“This is important for policyholders and agents to understand because water damage is one of the most common types of insurance claims to Citizens,” said Bunker. “Policyholders should clearly understand that the selection of an HO-8 rather than a HO-3 gives them zero coverage for water damage.”

Bunker said that due to the delays finalizing the program, Citizens expects to make the policies available sometime in mid-to-late February.

Florida Association of Insurance Agents President Jeff Grady said that final changes agreed to by Citizens and regulators should resolve most of the concerns over the policy, especially since it restricts eligibility to properties valued at $200,000 or less and are 51 years or older.

However, he noted, that the original legislative intent was to craft a less favorable Citizens policy that would make it less attractive than those in the private market failed.

“It started out as a sound idea,” said Grady. “But by the time it went through the Citizens assembly line and the regulatory directives, although restricted, the policy is not what was intended.”

There does remain one area of disagreement between Citizens and regulators and that is whether any future HO-8 rate increases will fall under the so-called “glide path” limiting annual rate hikes to 10 percent.

While Citizens is taking the position that since the HO-8 policy is a new product and therefore does not fall under the glide path, regulators maintain it will fall under the 10 percent limit.

“Future filings will be subject to the same capping that all current programs are subject to, unless the legislature changes the statutes,” said Office of Insurance Regulation Spokesperson Amy Bogner.