Part 1 of 2
In an interview with The Capitolist, former state senator and founder of the Florida Policy Project Jeff Brandes offered a look into the state’s everchanging property insurance environment, discussing the governor’s budget initiatives, legislative actions, and the financial stability of Citizens.
Throughout his time in office, Brandes championed the enactment of reforms in Florida’s approach to property insurance and called for substantial legislative changes. He previously expressed concerns over the stability of the private property insurance sector in the state, particularly in light of numerous insurance providers withdrawing their services from Florida.
Brandes has actively advocated for enhanced funding and expansion of the My Safe Florida Home program, which provides financial aid to homeowners to make their homes more resistant to wind damage, while also having criticized insurance reforms as insufficient, highlighting the need for better incentives to reduce fraudulent roof claims and advocating for actual cash value coverage for older roofs.
In 2022, Brandes called for a special legislative session to tackle the escalating insurance rates and the challenges faced by the state-backed insurer, Citizens Property Insurance Corp., which continues to rapidly grow under the current unstable market conditions.
Now out of office, Brandes lauded provisions included in Gov. Ron DeSantis’ recently rolled out budget recommendations, which aim to reduce the financial strain of property insurance for Florida residents. The governor’s budget includes an allocation of $431 million specifically designated for lowering homeowners’ insurance expenses, including the reduction of taxes on property insurance and a decrease in the insurance premium tax.
“I think you’re already seeing the governor come out with his proposals as it relates to the reduction of taxes on property insurance, whether that be flood insurance, dealing with the FICA assessment, or scaling back the insurance premium tax on an annual basis,” Brandes said. “You’re starting to see the governor, in the budget, [do] what he can do to reduce costs for Floridians. Now, are they going to have a dramatic effect? Time will tell; Unlikely, but it is something that they can do.”
Brandes also noted the need for minor legislative adjustments to clarify existing insurance laws, and underscored the importance of ensuring Citizens’ rates are “accurately sound, at least for new business.” On the financial solvency of Citizens, Brandes painted a concerning picture.
“Citizens has $10 million cash on hand and currently has $530 billion of insurance exposure,” Brandes said. “Given the current value of homes, the cost to rebuild, and Citizens’ concentration risk, it would be devastating, and the cost would be astronomical.”
When asked about a recent probe on Citizens, initiated U.S. Senate Budget Committee, over its financial resilience in the face of escalating climate risk, Brandes further elucidated that Citizens could face financial ruin in the event of a large-scale weather event.
“I mean, they did the math,” Brandes said, in reference to the Senate Committee. “In South Florida, Miami Dade, and the Tampa Bay markets, where Citizens has almost 60 percent of the market share of homes below $650,000, a large storm would be catastrophic.”
It’s not all doom and gloom with Citizens, though, according to Brandes. The former senator laid out a scenario in which the insurer can avoid financial troubles, largely by offering actuarially-sound rates to new customers and incentivizing insurers.
“The best way they could do is stop [new customers] from coming in the front door, and that is going to be with actuarially-sound rates for new policies,” said Brandes. “There’s a lot Citizens can be doing without the legislature’s approval, where they already have authority. They just need to continue to ask for more flexibility or they needed they needed to to provide more flexibility in the marketplace.”
Addressing the rising number of Floridians opting to self-insure their homes, with approximately 15 to 20 percent of homeowners currently utilizing this method, Brandes pointed to the need for more competition in the state insurance market to drive down prices, insinuating that the market’s lack of profitability serves as a barrier for investment and new entrants.
“People are at a choice of paying for home insurance or losing their homes,” said Brandes. “The only way you’re going to get more competition is for the Florida insurance market to be seen as profitable. It hasn’t been profitable for the last five years; we’ve lost almost $5 billion in capital in the last five years. Nobody is willing to invest in that market.”
Brandes also criticized the legislature’s lack of preparedness in addressing broader insurance challenges, including property, condo, and auto insurance. The current dynamics, particularly the propensity for litigation, have created a complex environment, he asserted.
“For many of these companies, it’s not going to go away for years… And legacy carriers will still face an incredible headwind of litigation for years to come,” Brandes said.
While the insurance ecosystem appears dire, Brandes stated that he doesn’t foresee any additional major insurers exiting the state. Rather, he anticipates a steady reshuffling of portfolios, akin to what Progressive did in recent months.
“I don’t think you’re gonna see more large-scale reinsurers or insurers leave the state en mass,” he said. I do think you’ll see a constant rebalancing of portfolios”