More than 100,000 race to Citizens Insurance as
hurricane season begins
Article Courtesy of The Sun Sentinel
By Ron Hurtibise
June 27, 2021
The state-owned “insurer of last resort” added more
than 100,000 new policies between February and May — a result, officials
say, of an ongoing customer purge by private-market companies looking to
shed policies that are most likely to generate costly claims.
Citizens Property Insurance Corp., created to ensure
Floridians can find insurance when no one else wants them, is becoming
the only choice for customers whose prior companies declined to renew
their policies or hit them with premium increases steep enough that they
became eligible to switch.
The sharp policy growth, just as
hurricane season gets underway, increases the risk that
Citizens’ $6.4 billion surplus won’t be able to cover all
claims if a catastrophe strikes South Florida or other
populated areas of the state. If that happens, Citizens
customers and potentially all property insurance customers
in Florida would have to pay special assessments to cover
“The market is upside down,” said Ryan Papy, president of
the Palmetto-based agency Keyes Insurance. “We are writing
hundreds of Citizens policies each month. Roughly 90% of our
new policies are [with] Citizens. Unfortunately, we are now
seeing current clients being channeled to Citizens.”
Citizens added 103,972 new customers from
February to May, including 54,770 from Broward, Palm Beach
and Miami-Dade counties. Further growth is expected through
2022, industry officials say.
The newest customers came from companies with large market
shares in South Florida, according to a list compiled by
Citizens. Topping the list were Universal Property &
Casualty (3,136 customers), People’s Trust (2,459), Florida
Peninsula (2,260) and Federated National (1,972), and United
Property & Casualty (1,900). Those totals could be larger
because sales agents listed the prior insurers for just 45%
of new customers.
A claims adjuster confers with homeowners. In
Florida, more than 100,000 new policyholders were forced to buy
coverage from state-owned Citizens Property Insurance Corp. between
February and May as private market carriers continue to jettison
their riskiest policies.
Dulce Suarez-Resnick, vice president at Miami-based Acentria Insurance
agency, said that “in the 36 years that I have been an agent in South
Florida, the market has never been this bad — not even in 2006 and 2007
after the 2004-2005 hurricanes when eight storms crisscrossed our
Citizens has been growing since the third quarter of 2019, when its
policy count bottomed out at 423,000. That milestone marked the end of a
seven-year decline from a peak of 1.5 million policies in 2012.
As of June 18, the company was back up to 626,607 policies and
increasing by about 6,000 a week.
“The industry is facing a real dilemma,” Citizens president and CEO
Barry Gillway told the company’s Market Accountability Advisory
Committee on Wednesday. “Their profitability remains at an unsustainable
Florida-based insurers have been losing money on operations for five
years, Gilway said. Combined, they posted net operating losses totaling
$1.6 billion last year and $269 million this year, he said.
Insurers blame a decade-long increase in costly lawsuits in South
Florida, heavier-than-expected claims after hurricanes Irma and Michael
and other recent storms, and an explosion of roof damage claims in the
Orlando area and southwestern region of the state.
Those factors also contributed to increases in costs of reinsurance,
which is insurance that insurance companies must buy to ensure they can
pay all claims after a catastrophe. Reinsurers often require insurance
companies to balance their exposure by reducing concentrations of
policies in high-risk areas.
In 2020, many customers were shocked to receive notices that their rates
would be increased as high as 45%, that their policies would not be
renewed because they were deemed too risky, or that their homes had to
pass inspections to retain eligibility for coverage.
In May, state insurance regulators allowed Universal Insurance North
America, Gulfstream Property & Casualty and Southern Fidelity to cancel
or send nonrenewal notices to more than 50,000 customers. So far,
Citizens has absorbed about 3,000 of those policies, Gilway said.
Homes ripe for rejection include those with older roofs, homes that
don’t meet current building codes, and homes with older plumbing or
electrical systems, said Paul Handerhan, president of the
consumer-focused Federal Association for Insurance Reform. Homeowners
with bad credit or who filed claims in the past could also be abandoned,
Sometimes, insurers will drop policies solely because they need to
reduce their concentration of policies in high-risk geographic areas,
like South Florida, home to 54% of Citizens’ policies.
Gilway expects Citizens to reach 800,000 policies through the first
quarter of 2022 before reforms enacted by the state Legislature and Gov.
Ron DeSantis this year reduce losses for private-market insurers.
Among those reforms are measures meant to make Citizens less attractive
to customers considering switching from their current insurers.
One that takes effect July 1 will disqualify some policyholders from
switching by requiring that a competing offer exceed Citizens’ rate by
20% instead of the current 15%. Another will increase the cap on
Citizens’ average annual rate increases, now 10%, by a percentage point
each year until it reaches 15%.