As firms fail, Citizens Insurance heads toward 1 million policies

As more private home insurance carriers enter receivership, Citizens property insurance is projected to hit over 1 million policies this year, according to local residential insurer experts.

One of the biggest challenges Citizens is facing is the increasing policy rates caused by more home insurance companies becoming insolvent that the state has been attempting to depopulate, said Sha`Ron James, insurance attorney at Gunster law firm and former Florida Insurance Consumer Advocate.

“Because we have more insurance companies reporting significant losses,” she said, “more policyholders are having to go to Citizens as a last resort for any type of coverage, and so that’s causing Citizens’ policy count to balloon.”

Companies across the industry are actually being impacted with the same pain points that Citizens has, Ms. James said.

“One area that I think folks are not as familiar with is the increase in the cost of reinsurance, which is insurance for insurance companies,” she said. “The more companies have to pay for their insurance, the more cost is passed on to consumers, which is causing an increase in rates. That’s something that Citizens has identified.”

One of the concerns for a policyholder with Citizens is the possibility of not getting the best comprehensive coverage that one may get through the private market, added Gina Clausen Lozier, partner at Berger Singerman and member of the firm’s dispute resolution team.

“Citizens may have caps depending on the age of properties. They have different conditions and requirements that are a little more restrictive on a policyholder as opposed to other carriers,” she said. “Other concerns are that you’re going to be paying more money for a policy that’s less beneficial in the long run.”

Citizens is immune from the statutory bad faith claim; every other carrier is subject to punishment for any extra-contractual damage exposure within a business practice that is not in the best interest of the insured, Ms. Lozier said. “Citizens is a governmental agency and statutorily enacted; it’s not subject to the same rules that everybody else has.”

Another area of concern about which Citizens has been extremely vocal is the increase of the frequency and severity of its claims, Ms. James said.
“As the number of insurance claims increases, what’s also happening is the value of those claims are also increasing. The frequency and the severity of those claims are also baked into the rate,” she said. “If an insurance company like Citizens has to pay more for claims and there are more claims, then that cost is passed on to all of its policyholders.”

If it continues at this rate of increase, insurance monthly cost or debt-to-income ratio will soon be equal to homeowners’ mortgage payments on an average 30-year mortgage, said Ryan Papy, the president of Keyes Insurance.

“For example, if somebody is paying $3,200 for a mortgage right now they may be paying $1,500 a month in insurance coverage,” he said. “But if Citizens didn’t exist, there wouldn’t be any new home sales or any transactions on mortgage-backed deals on homes more than 15 years old in the tri-county area. That’s how bad the private market is.”

A few years ago the Florida Legislature instituted a major assignment of benefits, or AOB, reform, Ms. James added, “and that’s an important point for today, because during our legislative session we were not able to pass any type of significant insurance reform, and partly because the House’s position was waiting for the market to respond to the 2019 insurance reforms.”

From a rating perspective, it takes at least 18 months for the House to tell whether those legislative changes had an impact, Ms. James said.
“But definitely,” she said, “there’s not going to be any type of relief anytime soon.”