Amid explosive growth, Citizens Insurance will be cherry-picked by private insurers

by | Aug 2, 2023

  • Florida’s Citizens Property Insurance Corp. will offload hundreds of thousands of homeowner policies to private insurers due to explosive growth in policies.
  • Concerns persist over the health of the property insurance market, with regulators approving proposals for private insurers to assume policies from Citizens.
  • Critics argue that the government’s involvement skewed competition, making Citizens the largest property insurer in Florida, while private insurers faced financial troubles and raised rates due to risks from catastrophic wind storms and rising labor and material costs.

Florida’s state-backed Citizens Property Insurance Corp., in the middle of an explosive growth in policies, announced it will begin complying with an Office of Insurance Regulation (OIR) directive to start offloading hundreds of thousands of homeowner policies to private insurers in the coming months. Despite the plans, concern remains over the health of the property insurance market. As of last week, Citizens had 1,345,403 policies, up 14,000 from 1,331,650 two weeks prior, according to data on the insurer’s website.

Citizens’ President and CEO, Tim Cerio, projects the policy count may reach 1.7 million by year’s end. Amidst this surge, regulators have approved proposals that may see private insurers absorbing up to large numbers of policies from Citizens starting in October. The move is part of the Citizens Depopulation Program, intended by OIR to reduce the insurer’s policy count.

Crafted by the Florida Legislature, the plan facilitates private insurance companies in the state to assume policies held by Citizens. The Office of Insurance Regulation (OIR) has already approved 91,000 policies for transition in the first half of 2023, with an additional 184,000 requested for October. Proposals by Slide Insurance Co. and Loggerhead Reciprocal Interinsurance Exchange to take 25,000 and 1,000 policies respectively from Citizens were approved last month. Currently, seven companies are participating in the 2023 depopulation program, with the number of requested policies for the first half of 2023 exceeding the total requested in 2022.

Citizens was initially designed as an insurer of last resort, but just as critics predicted, the government’s direct participation in the market skewed competition and rapidly made it the largest property insurer in Florida as private firms have shed customers and raised rates due to financial troubles and high risks associated with catastrophic wind storms. The financial risk is also related to the soaring costs of labor and materials needed for property repair or replacement. Citizens, supported by state funds, provides insurance at a lower cost compared to the private market, which adds to its appeal to homeowners.

Cerio has outlined plans to adjust premiums to align with those of private insurers, while also allowing the private market’s premiums to reach an actuarially sound level. The Citizens Board of Governors has internally approved a proposal that allows them to petition the OIR for a 14.2 percent hike in insurance expenses. This increase would apply to all personal lines policies due to inflation in the construction market.

In preparation for the hurricane season, the OIR authorized a request for $1.25 billion in credit lines for Citizens. These funds, to be provided by Bank of America and Wells Fargo, will help pay claims and expenses for personal lines accounts if necessary. Citizens must provide quarterly updates to the state on funds borrowed and used, as well as amounts repaid and expected to be levied for debt repayment.

The decision to extend credit lines follows concerns raised by Gov. Ron DeSantis earlier this year that Citizens was not solvent and could struggle to pay claims following a large-scale natural disaster. Proposals that could transfer many policies from Citizens to private insurers have been approved in response to these concerns, with Slide Insurance Co. receiving approval for the largest amount of 100,000 policies. Other insurers including Safepoint, Southern Oak, Florida Peninsula, and Monarch National Insurance Co. could also start pulling policies from Citizens starting October 17th.

However, the actual number of policies moving from Citizens to private insurers is likely to be less than the approved 184,000. Insurers will select the policies they want, a process likened to “cherry picking” by Citizens Board of Governors Chairman, Carlos Beruff. Even then, not all targeted policyholders will move to private carriers. This is despite a recent law change increasing the likelihood of customers moving from Citizens if private insurers offer coverage within 20% of the cost of Citizens premiums.


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