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Citizens CEO: Insurance Giant Is Unprepared For The Next Big Storm


The largest home property insurance company in Florida is $4 billion shy of what its head honcho feels it needs if a major hurricane were to hit the state this season.

In a recent interview, Citizens Property Insurance CEO Barry Gilway tells WLRN Special Correspondent Tom Hudson if a once-in-every-one-hundreds-storm—say, something more destructive than Hurricane Andrew—hit the state, policyholders and possibly taxpayers could be on the hook for all that money.

Below is a portion of that interview:

Hudson: Your message to Florida taxpayers is that Citizens $4 billion short, is that right?

Gilway: That is exactly right.

Hudson: Are you going to make it up over the course of your tenure by peeling off policies, lowering that risk essentially, or go back to the legislature and increase rates?

Gilway: The two ways to reduce the probable maximum loss are bill reserve and bill surplus. The better way is to reduce the size of the overall exposure through depopulation and reducing the size of Citizens.

Hudson: So in other words, on one hand it is increasing rates. You re talking about increasing reserves, you got to increase revenues for that to happen. The second part, depopulation, means fewer policies.

Gilway: Absolutely. So in terms of the shortfall you are referring to, in terms of the population of Florida, obviously the preferred way is we get smaller… The objective is to reduce the size of Citizens and by reducing the size of Citizens, reduce the potential for hurricane taxes.

Hudson: Reduce it ultimately out of existence?

Gilway: My view is we will never be out of existence. I don’t think it is a practical objective, if you take a look at the overall Florida market. Let me give you some numbers: We’ve got 186,000 homes with citizens that are over 50 years old. We have 60,000 mobile homes that over 25 years old. We have residences located in the highest risk areas—Monroe County. So, we have risks that I do not believe the private market will step up to.

Hudson: This is interesting, Barry. So if the private market won’t accept that financial risk, why should other state taxpayers accept that financial risk?

Gilway: You know, that’s why I can state I am not a policy maker. That is one of the challenges that the legislature has to resolve. I think they have to come up with a position relative to how much risk is going to be subsidized by the state in general. You asked the 64,000-dollar question.

Hudson: I think it is a $19.4 billion question, right? It’s the one-in-one-hundred-years storm question.

Gilway: Well, it is, but keep in mind, Tom, if you take a Cat-5 hurricane coming through Miami and Lauderdale, you know Miami and Lauderdale at current value is then a $100 billion risk.Thousands of South Floridians may be facing a deadline whether or not they want to continue to be customers of the state-backed Citizens Property Insurance. Citizens continues to depopulate—move insurance customers from Citizens coverage to private companies—in an effort to reduce the potential financial burden on Florida if a big storm hits.

Tom Hudson is WLRN's Senior Economics Editor and Special Correspondent.
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