• The growth of Citizens remains a major concern for state officials, who are trying to find ways to stabilize the property insurance market in Florida.
• State officials outlined a plan to slowly raise Citizens’ premiums up so that they are in-line with private insurer premiums
• The officials say that recent reforms are working, but could take up to two years to start seeing real impact on the property insurance market

Against the grim backdrop of Farmers Insurance pulling the plug on around 100,000 Florida policyholders this week, state-backed Citizens Property Insurance Corp. added more than 5,500 new policies last week, with another 400,000 expected by the end of the year. Citizens totaled 1,322,696 policies as of last Friday.

Citizens, which was created as an insurer of last resort, has become the largest property insurer in the state as private companies have dropped customers and raised rates because of financial challenges related to natural disasters and rapidly inflating costs of labor and materials to repair or replace damaged property.

The growth of Citizens is a major concern for state officials, who are trying to find ways to stabilize the property insurance market in Florida. On Wednesday, Chris Spencer, Director of Policy and Budget for Governor Ron DeSantis, urged continued patience as reform measures passed during the last legislation session start to make an impact on the private market.

“We all understand it’s going to take time to get rate relief in place,” Spencer said. “It takes anywhere from 18 months to two years to fully realize on an actuarial basis the effects of some of these reforms.”

But several factors are working against the reforms, including inflation in labor costs, lumber and other construction materials. At the same time, Florida home values are rapidly outpacing premiums, raising concerns that a substantial portion of Florida policies are actuarially unsound.

Spencer’s request for continued patience came in sharp contrast with the announcement early Tuesday that Farmers Insurance planned to discontinue coverage for about 30 percent of its property and auto insurance policies in the Sunshine State, citing rising costs for natural disasters, rebuilding and lawsuits. The move will impact somewhere between 90,000 and 100,000 property owners in Florida. And while Florida has suffered a rash of failed private insurers, the state is not alone in its struggles. Farmers also announced yesterday that it is pulling the plug on some policies in California, as well, due to wildfires and other natural disasters there causing financial concerns for the company.

But one of the most glaring problems for Citizens, which is subsidized by state dollars, is that it’s significantly less expensive to get insurance through Citizens than it is going through the private market.

Citizens President and CEO Tim Cerio appeared before the board and projected that, though the state-backed insurer was taking steps to raise its premiums so that the private market could be more competitive, Citizens will nevertheless likely finish the year with around 1.7 million policies and $645 billion in total insured value.

Cerio noted that his projections may be lower if “depopulation measures” prove to be effective at moving some portion of property owners back into the private market as reforms enacted over the last several years start to take effect. He outlined Citizen’s plan to bring premiums up so that they are in-line with private insurer premiums – while at the same time allowing time for the private market’s premiums to more closely reflect an actuarially sound premium level.

“We have to return to being the state’s property insurer of last resort,” Cerio said. “Instead we’re the state’s largest property insurer – with the lowest rates on top of that. And that’s going to continue to distort the market and impede recovery efforts.”

Cerio noted that some of the reforms passed during session have helped opened up the reinsurance market, helping bother private insurers and Citizens to offload some risk from their balance sheet. Cerio said Citizens managed to purchase $650 million worth of reinsurance coverage to transfer $5.38 billion worth of risk off of Citizens’ balance sheet, though reinsurance rates increased for Citizens by about 25 percent compared to the previous year.

He also noted that Citizens was able to secure the reinsurance coverage without reducing reinsurance availability from the private market. Some private insurers have pointed to the lack of affordable reinsurance as a major reason they were pulling out of the state.