Overriding objections it was rushing a deal that could hurt public trust, the board of state-run insurer Citizens narrowly approved a plan Wednesday to transfer 60,000 customers eight days before hurricane season and pay more than $50 million to a start-up insurance company that gave generously to Gov. Rick Scott’s political committee.
As The Palm Beach Post reported in April, Heritage Property and Casualty Insurance Co. of St. Petersburg contributed $110,000 in March to Scott’s Let’s Get to Work committee among more than $700,000 in giving from insurance interests in the first four months of the year.
As several board members said they understood it, Citizens would pay Heritage $52 million in a deal involving reinsurance arrangements back-dated to Jan. 1, though Heritage would not actually take customers until June and if it chose, could select customers who had not made claims.
“Technically we’re giving a $52 million bonus,” said board member Tom Lynch of Delray Beach, who abstained from the 3-2 vote because of a potential conflict as an agent handling Citizens customers moving to other carriers. “I think we’re doing it the wrong way. We’re rushing it.”
Scott’s chief of staff called Citizens “tone-deaf” even as he denied any undue influence.
“Any assertion that our office influenced the Heritage risk transfer decision by the Citizens Board today is outrageous,” Adam Hollingsworth, Scott’s chief of staff, said in a statement. “As we have said before, Citizens appears to be tone-deaf in earning public confidence. Citizens needs to review their own process for taking up risk transfer agreements to ensure that all decisions are fully, publicly vetted with enough time for board members to review the material and make the best decision possible for the taxpayers of Florida who support Citizens.”
Consumer advocates said the deal cries out for greater scrutiny.
“Something seems off — especially when you follow the money on this deal,” said Sean Shaw, the state’s former insurance consumer advocate and an attorney who sues insurers. “Even the appearance of impropriety is enough to warrant a more thorough review.”
Heritage, licensed in August, could take as many as 60,000 Citizens policies under the deal. With earlier Citizens transfers, in less than a year Heritage could grow from zero customers up to 114,000 by the summer, placing it just outside the state’s top 10 insurers by policy count. Company officials say the final number is likely to be less than 100,000 because customers can choose to stay with Citizens.
One of Scott’s appointees to the Citizens board, John Wortman, made a motion to approve the deal at the special meeting despite concerns raised by several board members that it might not be a good use of ratepayers’ premiums and needed more scrutiny. Board members said they got documentation only days before the meeting, and it had bypassed the board’s normal committee process.
“I am concerned Citizens is so focused on reducing exposure it may be not be using the Citizens surplus to the benefit of policyholders,” said board member Carol Everhart. “We need to get public support on our side again.”
But the plan passed after Wortman, chairman Carlos Lacasa and Juan Cocuy of Wellington, recently appointed by Chief Financial Officer Jeff Atwater, said they were satisfied the plan had been sufficiently checked out.
Officials with the state’s Office of Insurance Regulation at the board meeting said they had met with Heritage officials and reviewed a variety of records, though an audited financial statement would not be available until June 1.
“I want to make sure enough due diligence was done so we don’t regret this,” Cocuy said. “If OIR says that is the case, I’m comfortable with it.”
Heritage officials disputed characterizations of the deal as some sort of giveaway.
“Policies are already selected and we pay all losses back to Jan 1,” said a statement from Heritage president Richard Widdicombe. “We will not get $52 million; it will be substantially lower. The money is used to pay claims, buy reinsurance and pay taxes.”
Citizens president Barry Gilway defended the transaction as a good way to reduce the state-run carrier’s risk exposure, but he acknowledged it was “unique” so close to hurricane season. Heritage agreed not to raise rates more than 10 percent a year for three years on the transfers.
Citizens executives said said the deal could reduce Citizens’ risk exposure by 5 percent in a 1-in-100 year storm, which has a 1 percent chance of happening in any given year. That in turn could reduce the risk of assessments to its customers and others if such a rare storm were to hit.
What The Post Found
Post insurance writer Charles Elmore reported in April that Heritage Property and Casualty contributed $110,000 to Gov. Rick Scott’s political committee as it sought deals to take Citizens customers and the Legislature considered bills affecting the state-run insurer.