As property insurance rates skyrocket, Florida ‘insurer of last resort' seeks to become less attractive

With hurricanes, rising sea levels and litigation driving Florida property insurance rates sky high, state taxpayers are increasingly at risk as more landowners sign onto the state’s subsidized “insurer of last resort.”

When the Legislature convenes its 60-day 2022 session on Jan. 11, state officials say among priorities – in addition to addressing Florida’s distressed property insurance market – will be making Citizens Property Insurance Corp. less attractive while keeping it strong enough to support those who can’t find property insurance.

Florida has reluctantly been in the property insurance business since the Legislature created Citizens in 2002 after corporate insurers, such as State Farm, Allstate and Liberty Mutual, abandoned the state because of hurricane losses, leaving an increasing number of the state’s 6.5 million landowners, including 6.2 million homeowners, unable to find property insurance.

In 2012, Citizens’ policy count swelled to 1.5 million with the state backing $10 billion in property insurance policies. A “depopulation” initiative to transfer policies – and liability – to private insurers whittled the count to 419,475 in October 2019.

But since then, Citizens’ enrollment has been increasing as the approximately 60 thinly-financed independent insurers who dominate the state’s market have sought double-digit rate hikes, some as high as 45%, citing ballooning reinsurance costs, “loss creep” from 2017-18 hurricanes, coastal flooding and excessive litigation.

Citizens projected earlier this year it would have 650,000 property owners enrolled by December 2021. It has upped that to 765,000 and now anticipates more than 1 million will be enrolled in 2022 with the state liable for $6.4 billion in potential damage claims.

Last week, Citizens Board of Governors Exposure Reduction Committee unveiled three tentative proposals it will ask lawmakers to carry in the 2022 session on their behalf designed to reduce its policy count by increasing costs for policy holders.

“We want to get these people out of our insurance company. We want them to be out in the free market,” Exposure Reduction Committee chair Nelson Telemaco said.

Under state law, residents can purchase a Citizens policy if they cannot find private insurance or if a policy is 15% above Citizens’ rates.

Under a 2007 law, those enrolled can reject for any reason a request by Citizens to transfer their policies to a private-market insurer.

Under the still-preliminary proposals, the 2007 law would be repealed and Citizens’ policyholders would only be allowed to remain if premiums charged by a private insurer exceeds Citizens’ rates by more than 20%.

Another tentative proposal calls for allowing Citizens to reject potential customers who had previously refused a private insurer’s bid to sell them a new policy at renewal time unless that offer exceeded Citizens’ rates by more than 20%.

The third prospective bill Citizens is mulling would simply eliminate policyholders’ ability to reject “takeout offers” by private insurers altogether.

In essence, Citizens is proposing to shift those enrolled under its program to private insurers if their rates don’t exceed its rates by more the 20%.

Citizens President/CEO Barry Gilway said under those laws, about 80% of Citizens’ policyholders selected for “takeout offers” under the depopulation program rejected the private insurer’s bid, not necessarily because of the new rates but because many said they did not trust the financial viability of independent insurers in the state’s property insurance market.

In the second quarter of 2021, Gilway said, only 330 Citizens customers received offers below the price they were getting from the state-subsidized insurer, while 1,208 received offers above their Citizens premium, making them eligible to remain with Citizens under the 15% provision.

Original story at The Center Square.