Citizens Property Insurance Corporation is a state-owned insurer of last resort that provides coverage to homeowners who cannot find affordable policies in the private market. Citizens was created in 2002 by the Florida Legislature as a merger of two existing state-run insurance entities. Citizens is funded by premiums paid by its policyholders and assessments levied on most other property insurance policies in the state.
Why did Citizens lose policies to private insurers?
Citizens has experienced a surge in its customer base in the past three years, as private insurers have raised rates and reduced coverage options due to financial losses from hurricanes, litigation, fraud, and reinsurance costs. Citizens had 1.412 million policies as of October 8, 2023, up from 443,000 policies in 2019.
However, this month, Citizens saw a drop in its policies after five private insurers assumed 99,773 policies in mid-October as part of a state effort known as “depopulation” to shift homeowners into the private market. The five companies that took over the policies are Slide Insurance Co., Safepoint Insurance Co., Florida Peninsula Insurance Co., Southern Oak Insurance Co., and Monarch National Insurance Co.
The depopulation program allows private insurers to offer coverage to Citizens customers at rates that are within 20% of the cost of Citizens premiums, as per a change approved by lawmakers in December 2020. The program is intended to reduce the exposure of Citizens and the potential liability of all Florida policyholders in the event of a major catastrophe.
How did the customers react to the depopulation program?
According to Citizens data, many customers targeted by the five companies for October takeouts remained eligible to stay with Citizens, as they received offers that would have exceeded 20% rate hikes. Customers have the option to opt out of the depopulation program and remain with Citizens if they are not satisfied with the offers from private insurers.
Some customers have expressed concerns about the quality and stability of the private insurers, as well as the possibility of losing discounts and credits that they had with Citizens. Others have welcomed the opportunity to switch to private carriers that may offer better coverage and service.
What are the implications of the depopulation program for the insurance market?
State Insurance Commissioner Michael Yaworsky said that private insurers taking Citizens policies is not “the end-all, be-all” of having a healthy insurance market, but he also indicated it is encouraging. He said that the depopulation program shows that private interest is coming into the state and that companies have begun to recapitalize and write more policies.
Yaworsky also said that regulators have approved a series of proposals by private insurers to take out additional policies from Citizens in November and December, with a cap of 40% rate increase for policyholders coming from Citizens. He said that he expects more competition and innovation in the insurance market in the future.
However, some experts have warned that the depopulation program may not be sustainable or beneficial for consumers in the long run, as private insurers may face financial challenges or regulatory hurdles that could force them to raise rates or drop customers again. They have also argued that Citizens should be allowed to charge actuarially sound rates that reflect its risk exposure and discourage customers from staying with the state-backed insurer.