Surcharge assessment..??

Published July 4th, 2008

By John Johnston and Lauren Becker
Managing Editor and Staff Intern

If you live in Boca Raton or Delray Beach -- anywhere in Florida -- then you know about, worry about, plan for, and dread the price you pay for living in the flip side of another day in paradise – that is, also living in hurricane alley.

And let’s put one myth to rest immediately. Many who live in Southeast and Southwest Florida assume those portions of the state have received more direct hurricane hits than other parts of Florida.

Not so, according to the National Hurricane Center.  In fact, and from 1851 through 2004, Northwest Florida received 55 direct hits, Southwest, 36, Southeast, 41 and Northeast, 22 – for a grand total of 110 direct hits.

However, can Southeast and Southwest Florida claim the right to say, “yeah, well, there might have been fewer hits, but those that did come were more powerful?”

Yes and no. The number of Category 3 to 5 hurricanes during the same period was: Southeast, 15; Southwest, 12; Northwest, 12; Northeast, 1 --- but with slightly more 4 and 5 storms in the Southeast.

A category 3 hurricane has winds of 111 to 130 MPH; category 4, 131-155 and category 5, 156 MPH plus.

Hurricane Andrew, which hit primarily the Miami area in 1992, was a category 5 storm with winds at 165 MPH at landfall.  By comparison, Hurricane Katrina’s landfall wind speed was 140 MPH.

After The Wind

And after the wind goes, there’s the clean up and the repairs……….followed by the insurance bill. For many, that means an insurance bill from the State insurance company Citizens.

It also means a confusing set of add on fees that can have you scratching your head, saying, “huh?”

When an ordinary person receives a bill for a credit card, he or she will look over the contents and make sure the charges are legitimate. If a charge is found that the card-owner did not make, procedures exist to contest the charge.

Not so with your insurance bill from Citizens.

The Boca Raton News in fact has seen one policy that has, in addition to the hurricane premium itself – some six other “surcharges” – for a total of seven charges on the bill.

And those six surcharges mean, and are for what?

While the policy is meant to insure against damages that occur as a result of a hurricane or other wind damage, 5 out of those 7 charges do not even have the words ‘wind’ or ‘hurricane’ in the titles. The names of these charges offer no explanation – and so you’d think the only way to learn is to ask the writer – Citizens Property Insurance Corporation –  the State's homeowners' insurance safety net, created by the Legislature in 2002, and now insuring more than 1.2 million properties statewide.

But don’t necessarily expect a straight answer from Citizens.

When contacted, the woman answering the phone at Citizens was asked to explain the six additional surcharges.  She was unable to do so – and so pulled out the company manual.

Even then she could only read off generic definitions and was unable to explain them – that is assuming a plain English definition exists.  Not entirely surprisingly, the woman at Citizens confessed that the company hasn’t updated its manuals in at least a year.

Breaking It Down

OK…let’s look at the bill in question specifically -- it’s a wind only policy issued by Citizens

The hurricane premium is $2,233 – and then there are the following obtuse “surcharges.”

• Non-hurricane premium: $53.
• 2005 Citizen's Emergency Assessment, $32.
• Tax Exempt Surcharge, $40.
• 2005 Florida Hurricane Catastrophe Fund Emergency Assessment; $23
• Catastrophe Reinsurance Surcharge, $343.
• 2007 Florida Insurance Guaranty Association Regular Assessment, $39.

To be fair, there has been a guide produced (not by Citizens) but by the Florida Association of Insurance Agents (FAIA), which is a summary explanation of the surcharges – but it’s not something widely distributed – and, well, you can judge for yourself about whether it actually explains anything.  In the same order as listed above, following is an FAIA explanation of the surcharges, and quoted exactly as presented by FAIA:

• Non Hurricane Premium – This isn’t on FAIA list of Citizen explanations, but we found it explained elsewhere as: “This is the amount of the premium that is charged for non-hurricane wind (i.e. a tornado that touches down outside of a hurricane/named storm). This is not a surcharge; it is a part of the premium total premium that is the hurricane and non-hurricane premiums combined.” 

• 2005 Citizen's Emergency Assessment:  “Description: Used if a regular assessment is insufficient to cover the deficit for particular year. The assessment may be adjusted as needed and may continue until the deficit is regained. Assessment: 1.4 percent. This assessment is effective July 1, 2007 and may continue until the entire deficit is recouped. The previous assessment was 1.5 percent.

• Tax Exempt Surcharge: “Description: Insurers are required to collect a state tax for each policy the insurer writes. While Citizens is tax-exempt, this allows Citizens the financial resources to pay claims. Surcharge: 1.75 percent.”

• 2005 Florida Hurricane Catastrophe Fund Emergency Assessment: “Florida Hurricane Catastrophe Fund (2005 FHCF Emergency Assessment) Description: An emergency assessment may be levied on insurance companies, and recovered through policy holders, if revenue from premiums is insufficient to restore the capital capacity of the FHCF. Assessment: 1 percent applying to all property/casualty policies effective January 1, 2007 and will remain in effect until a new OIR order is issued.”

• Catastrophe Reinsurance Surcharge: “Florida Hurricane Catastrophe Fund (FHCF Recoupment Surcharge) Description: Fund deficiencies are recouped by a surcharge levied on insurance companies and recovered through their policyholders. Currently the surcharge is 14.9 percent.”

• 2007 Florida Insurance Guaranty Association Regular Assessment: Again, this item is not listed on Citizen’s list of explanations – but The Boca Raton News has learned that it’s needed to cover losses by the failed Poe’s Insurance Company.

Plain English

So – now that Citizen’s has cleared (not) all of this up for us, and the FAIA has cleared (not) all of this up for us as well – let’s ask someone who really knows: Bob Rollins, president of the Boca Raton based independent insurance agency, Beacon Group, Inc.

And Rollins summed up all of the surcharges in one simple plain English sentence:  “These surcharges are the post disaster recovery of the inadequate rates that Citizens was charging during 2004 2005.”

Rollins is of course dead on with that assessment.

But rather than face the political heat of raising (rather than freezing) Citizen’s rates since then, the legislature apparently hopes to hide the obvious in the rhetorical woodpile of surcharges – apparently believing that citizens will shrug and look at the bill as if it were a telephone or electric bill with all of its “other charges.”