The Growing State of Florida Citizens Insurance – InsuranceNewsNet

the number of Citizens Property Insurance Corporation policies have skyrocketed as bankrupt or exiting companies force homeowners to look to the “insurer of last resort.”

Regarding July 2022the number of Citizens’ policies was 937,835, double that of 2020. At the current growth rate of 6,000+ policies per week, Citizens will have over a million by the end of the year.

Insurers blame rampant fraud, excessive litigation and inappropriate premium levels. Recent events lend some credence to this argument. To date, ten property and casualty companies are in liquidation, four of which are in bankruptcy. Coral Gables– based Weston Insurance is the latest. The remaining carriers are tightening their underwriting criteria and raising premiums, in some cases by as much as 30-50 percent.

CAUSES Although they have been spared in recent years from devastating natural disasters, Floridasurrounded by water, it remains a high-risk territory with hurricanes, water intrusions and the recent tragic collapse of a building on the coastline.

Historically, the state has pushed carriers for lower premiums regardless of underwriting risks. However, over the past several years, what has been particularly detrimental to carriers has been pro-consumer legislation that has resulted in an extraordinary number of claims and litigation. The main pieces of legislation that are believed to pose undue risk to carriers: the requirement to provide full roof replacement if there is damage to 25 percent of the roof, and the ability for attorneys to have their fees paid by the carrier if a claim is ultimately paid.

The well-intentioned legislation created the unintended consequence of encouraging roofing contractors to aggressively solicit business and for lawyers to take on litigation. As a result, Florida has returned to ground zero for most of the country’s insurance litigation. According to Insurance Information Institute, Florida it represents 9 percent of all insurance claims in the country, but accounts for 79 percent of all homeowner’s insurance claims filed.

Oddly enough, premium increases have also been the driver of new citizen policies. One of the criteria required to qualify for a citizen policy is to show that the premiums from a Florida authorized carrier are more than 20 percent higher than premiums for similar coverage at Citizens. With the remaining private carriers raising premiums up to 30-50 percent, as mentioned above, the 20 percent limit is not so insurmountable.

In May of this year, Florida the legislature passed new laws aimed at reducing roofing claims and litigation. Although a positive step, many say it will take years for this legislation to show results.

STORM STRIKE, DEFICIT DISASTER Of the many articles being published about the citizen surge, none speak of the larger potential impact that will affect both citizen and non-citizen policyholders.

What happens if a storm hits and citizens run a deficit as a result of the volume of claims submitted?

THE STATE HAS THREE MECHANISMS IT CAN IMPLEMENT TO RECOVER A CAPITAL LACK.

1. Citizen policies may be assessed a one-time fee of up to 45 percent of their premium; 2. If the first level assessment is insufficient, the state may then assess a one-time fee on all private market policyholders, including, but not limited to, homeowners, auto and specialty lines and the surplus up to 2 percent of the premium; 3. If they turn out to be insufficient, the state can assess citizens and all private market policy holders up to 30 percent of the premium per year until the deficit is eliminated.

The administrative and logistical challenge to collect on these estimates would be enormous, and its impact on the timing of claims payments for such a catastrophic event is difficult to project. With the most ominous months of the hurricane season ahead of us and our exposure to citizen risk continuing to increase, let’s hope we don’t have to find out.

Doug Sawyer, a native of Miami, has a long career serving as an executive for several prominent financial institutions overseeing the retail, commercial and wealth management divisions. He has received numerous licenses for investments and insurance, the most recent being that of General Agent. He is now in line with Century Risk Advisorsor South Florida based firm that offers a wide range of insurance and risk management solutions.