TALLAHASSEE, Fla. – Jan. 8, 2013 – Florida-owned Citizens Property Insurance Corp. was required by law to start offering less expensive HO-8 policies this month, and it says it expects HO-8 policies to be commercially available sometime in February.

However, an HO-8 policy – about 21.7% less expensive than Citizens’ current HO-3 policy – applies only to homes at least 51 years old with a replacement value less than $200,000. And it offers less coverage.

HO-8 development took a few turns before the final version was approved. The original vision called for a policy that would entice private insurers to enter the Florida market. However, Citizens officials and Florida regulators had trouble reaching agreement on what the HO-8 should – and should not – cover.

At least one Citizens board member, Greg Rokeh, felt that the new policy would entice more homeowners, not less, to become Citizens customers if they focused on the “cheaper policy” part more than the “less coverage” part.

The details

• An HO-8 policy generally pays cash value following a loss; however, Citizen’s version would still pay replacement cost, like its current HO-3 policy. Without that change, mortgage lenders might not accept the HO-8, since they want assurance that the value of a property will be guaranteed following a disaster.

• A property must have a replacement value less than $200,000 and be at least 51 years old. Those restrictions were created to deter most homeowners from opting for the HO-8. It also minimizes the number of commercial property owners who qualify.

• Sinkhole coverage from Citizens can be added to HO-8 policies at the same rate paid by HO-3 policyholders.

• HO-8 excludes all coverage for water damage, which is the primary reason the policy costs over 20 percent less. However, “Water damage is one of the most common types of insurance claims to Citizens,” according to Citizens Spokesperson Candace Bunker.

“(The HO-8) started out as a sound idea,” says Florida Association of Insurance Agents President Jeff 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.”

One issue has not yet been settled. Citizens cannot raise rates more than 10 percent per year on existing policies, but it claims that the HO-8, as a new policy, isn’t restricted by the 10 percent yearly cap.

However, Office of Insurance Regulation Spokesperson Amy Bogner disagrees, saying the 10 percent cap still applies “unless the legislature changes the statutes.”

Source: Claims Journal, Jan. 8, 2013, Michael Adams

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