• Citizens Property Insurance Corporation on Thursday continued its push for authorization from the Office of Insurance Regulation for a double-digit rate increase on existing policies.
• The company argues that its rates are artificially low due to a glide path mechanism, causing market distortion and unfair competition.
• Citizens is requesting a 12 percent rate increase for homeowners’ policies, but state law imposes a cap on annual rate hikes.
• Private insurers have implemented stricter underwriting guidelines in response to market challenges, while Citizens has experienced significant growth in recent years but remains 44 percent below the average premium of private-sector competitors.

Citizens Property Insurance Corporation is continuing its push to receive authorization from the Office of Insurance Regulation (OIR) for a double-digit rate increase on existing policies.

The company argued during an insurance regulation hearing on Thursday that its rates are artificially low due to a glide path mechanism, resulting in market distortion and unfair competition.

As a result of Senate Bill 76, Citizens began increasing the capped “glide path” on rate increases by 1 percent annually, starting in 2022 until the cap reaches 15 percent in 2026.

“Citizens’ rates are artificially low because of the glide path, and that throws off the private market and distorts competition,” said Brian Donovan, Vice President and Chief Actuary for Citizens.

Citizens is requesting a 12 percent rate increase for homeowners’ policies. However, state law imposes a cap on annual rate hikes, potentially limiting the proposed increases. The approval of the rate increase plan is pending, requiring approval from the Citizens Property Insurance Corp. Board of Governors and subsequent approval from the OIR.

According to the group, the recommended rates for 2023 call for a statewide average increase on all personal lines policies including homes, condominium units, dwellings, renters, and mobile homes due to inflation in the construction market.

Specifically, homeowner policy rates would increase by an average of 13.9 percent while condo owners would see an average 14.6 percent increase. If approved by the OIR, the 2023 rates would go into effect for new and renewed personal residential policies beginning November 1.

Citizens President and CEO Tim Cerio emphasized that a recent piece of legislation, Senate Bill 2-A (SB 2-A), will address underlying market issues, although the immediate impact may be limited.

Per Cerio, SB 2-A has already reduced Citizens Insurance’s premium needs by over $900 million, which has been factored into the rate increase request. However, due to residual rate inadequacy and the company’s position within the private market, Citizens is seeking the maximum rate increase allowed under the glide path.

As demonstrated in a presentation given to the OIR on Thursday, private insurers have responded to market challenges by implementing stricter underwriting guidelines. These guidelines include limitations based on location, age of insured homes or roofs, and reduced water loss coverage.

Citizens has experienced significant growth in recent years, adding 49,000 policies per month. In 2021, the company averaged 32,000 new policies per month, more than double the 15,000 policies per month added in 2020.

Despite this growth, the average premium for homeowner policies remains 44 percent below that of its private-sector competitors

To assess potential damage costs in the event of two separate Category 4 hurricanes, Citizens conducted projections using its current surplus and projective risk transfer. The results estimated damage costs of $7.3 billion and $16.7 billion, respectively, which would exhaust the coastal and personal lines account surplus.

Combined, these storms would result in approximately $23.9 billion in costs. The decline of Citizens’ surplus by 33 percent over two years further highlights the urgent need for rate increases to maintain financial stability.

In anticipation of the hurricane season, the OIR has authorized a request for $1.25 billion in credit lines for Citizens. These funds would assist in covering claims and expenses through a Revolving Credit Agreement, including homeowners’ policies. The authorization comes with reporting requirements to ensure transparency and oversight of borrowed amounts, repayments, and levies for debt repayment.

Moreover, state regulators have approved proposals from two insurers to assume up to 26,000 policies from Citizens Insurance. This move aims to alleviate some of the burdens faced by Citizens and promote a more balanced insurance market.