Florida’s property insurance crisis forces 8,000 more homeowners into Citizens

by | Sep 20, 2022

  • Citizens property insurance enrollment has exploded from half a million policies in 2020 to more than 1 million this month
  • Lawmakers are scrambling to come up with a workable solution that protects homeowners and fosters a healthy private insurance environment
  • One potential change may include finding a replacement for insurance ratings company Demotech, which says it hasn’t changed its ratings method for 26 years
  • More than 8,000 policy were added to Citizens in the last week alone

Another 8,000 homeowners were forced to switch their policies to the state-backed Citizens Property Insurance Corp., bringing its total to 1,055,366 as of Friday, the latest data shows. As homeowners scramble to find affordable options to protect their homes, state policymakers are scrambling to find a way to stop the exodus of insurers from leaving Florida.

Citizens insurance, which is subsidized in by the state, was originally intended to serve as the “insurer of last resort.” In other words, the state never intended it to be the primary vehicle by which homeowners protect their primary residence. But with more and more private insurers leaving the state, cancelling policies or becoming financially insolvent, Citizens has rapidly become the only option for a massive number of homeowners in the state.

This year alone, five Florida property insurers have been placed into receivership after they were declared insolvent since February.

While some of the blame has been laid at the feet of insurance financial ratings company Demotech, the company says they haven’t changed anything in 26 years of doing business in Florida. Demotech’s ratings, based on the financial health of each insurance company, drive the price the insurers pay to acquire reinsurance, which the companies use to backstop their own financial health in the event that a severe storm triggers an unexpected number of insurance claims for damages.

Those lower ratings from Demotech have led to higher reinsurance acquisition costs, and in some cases, the inability to acquire reinsurance at all. In that situation, mortgage underwriters Fannie Mae and Freddie Mac won’t accept policies where the insurer cannot underwrite a homeowner’s policy because the underlying asset – the home itself – would not be protected. That, in turn, has caused a massive exodus from the Florida insurance market, leaving homeowners with nowhere to turn except Citizens.

The net effect is that Citizens enrollment – and therefore the state’s own exposure – has more than doubled over the past two years.

1 Comment

  1. Jim

    You reap just what you sow. The private Insurance market needs to see in real legislation that Florida Lawmakers will divorce themselves from allowing their brother attorneys to use Insurance coverages ( read homeowners policies), as their god granted extortion fund. Lowering the financial rating bar is like lowering the cross bars in football to make sure every kick goes through. Once Demotech rating was less severe than AM Best, and still is, so FANNIE, FREDIE and GINNIE(read Fed Gov.) pushed to use their ratings to allow inflated values to be financed and insured.

%d bloggers like this: