The Growing State of Florida Citizens Insurance – InsuranceNewsNet

The number of Citizens Property Insurance Corporation policies have soared as bankrupt or exiting carriers force homeowners to seek refuge with the “insurer of last resort.”

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

Insurers blame rampant fraud, excessive litigation and inadequate premium levels. Recent events lend some credence to this argument. To date, ten property and distressed 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 increasing premiums, in some cases by 30-50 percent.

REASONS Although spared the last few years from devastating natural disasters, Floridasurrounded by water, remains a high-risk area with hurricanes, water intrusion and the recent tragic collapse of a waterfront condominium.

Historically, the state has pushed carriers for lower premiums despite the underwriting risks. However, over the past few years, what has been incredibly damaging to carriers has been consumer-oriented legislation that has resulted in an extraordinary number of claims and litigation. The key pieces of legislation said to pose undue risk to carriers: the requirement for a 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 the claim is ultimately paid .

The well-intentioned legislation created the unintended consequence of incentivizing roofing contractors to aggressively seek business and attorneys to take on litigation. As a result, Florida has become ground zero for the majority of insurance litigation in the country. According to Insurance Information Institute, Florida accounts for 9 percent of all insurance claims in the country, but accounts for 79 percent of all homeowner’s insurance claims filed.

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

In May this year, Florida Legislature passed new laws aimed at reducing roofing claims and litigation. While 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 citizen growth, none talk about the potential larger impact that will affect both citizen and non-citizen policyholders.

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

THE GOVERNMENT HAS THREE MECHANISMS IT CAN IMPLEMENT TO RECOVER CAPITAL DEFICIT.

1. Citizen policyholders may receive a lump sum of up to 45 percent of their premium; 2. If the Tier One assessment is insufficient, then the State may assess a one-time fee to all policyholders in the private market, including but not limited to homeowners, automobiles, and specialty and excess lines of up to 2 percent of the premium; 3. If they prove inadequate, the state may assess citizens and all private market policyholders up to 30 percent of the premium per year until the deficit is eliminated.

The administrative and logistical challenge of collecting these estimates would be enormous and its impact on the timing of claims payments in such a catastrophic event is difficult to predict. The most ominous months of the hurricane season are upon us and our exposure to citizens continues to grow, let’s hope we don’t have to find out.

Doug Sawyer, born in Miami, has had a long career as an executive at several prominent financial institutions, overseeing the retail, trading and wealth management divisions. He has received numerous investment and insurance licenses, the latest of which is that of General Agent. It is now aligned with Century Risk Advisorsa South Florida based firm that offers a wide range of insurance and risk management solutions.

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