Florida has the worst property insurance market.
Four Florida insurers have declared bankruptcy since April, and others are canceling or not renewing insurance policies. Hundreds of thousands of people have been forced to purchase property coverage through the state-established insurance company as a last resort, Citizens Property Insurance Corp.
“Every day, another company appears to be in bankruptcy,” Barry Gilloway, Citizens CEO, said at a recent public meeting.
The number of citizen policies recently crossed one million for the first time since early 2014 and could reach nearly 2 million by the end of 2023, according to citizen predictions.
Two years ago, citizens secured just over 510,000 properties in Florida.
Gilloway described the policy’s growth as “incomprehensible”.
Florida residents now have the highest rates of property insurance in the country, according to the industry-funded Insurance Information Institute. The average premium is $4,231 — nearly three times the US average of $1,544.
“It has reached a point where Florida residents cannot find affordable coverage for their homes,” said institute spokesman Mark Friedlander. “It will eventually catch up with our booming real estate market and lead to lower property values.”
Meanwhile, from October through June, nearly 160,000 Florida residents dropped flood insurance policies they had purchased from the Federal Emergency Management Agency as it raised interest rates for some homeowners. Flood insurance is separate from homeowners coverage.
The instability in the homeowner’s market is the result of a unique combination of circumstances including costly litigation against insurance companies and storm damage to Florida’s insurance companies in neighboring states.
Florida hasn’t experienced a major hurricane since 2018. But since then, many Florida insurance companies have expanded to cover real estate in Louisiana, which incurred tens of billions in losses from Hurricane Laura in 2020 and Hurricane Ida in 2021.
In late May, the Florida legislature met in a special session to address the insurance crisis and enacted two laws designed to boost industrial finance in part by controlling costs arising from lawsuits brought by policyholders challenging claims settlement.
But since then, three insurers in Florida have gone bankrupt, affecting 170,000 policies, and others have announced their withdrawal from Florida — a process that involves not renewing policies when they expire. The fourth insurance company, Avatar Property & Casualty Insurance Co., went bankrupt. , in April.
“The crisis continues to escalate because strong enough action has not been taken in the legislature,” Friedlander said.
Kyle Ulrich, president of the Florida Association of Insurance Agents, said the legislature has enacted a “meaningful and consequential negative reform” even though the changes could take years to help the insurance industry.
“The effects don’t happen overnight,” Ulrich said.
In July, Citizens Insurance added 63,000 new policies — the largest increase in a single month since July 2006, when insurers were reeling from a series of hurricanes that have devastated Florida in the past two years.
But more important than the number of citizens’ policies is their financial exposure, as measured by the total value of the property they insure.
While the number of properties insured by citizens has doubled since September 2020, the value of insured properties has nearly tripled to $360 billion from $133 billion, according to Citizen Records. The growth was concentrated in hurricane-prone southeast Florida, which has some of the highest property values in the state.
“A major hurricane event or series of hurricane events like Louisiana in the past few years could easily wipe out citizens’ reserves to pay claims,” Friedlander said.
The growth is raising concerns that citizens will use their unfathomable power to impose special ratings on every insurance policy in the state except for Medicare and malpractice coverage if they run out of money to pay claims. Citizens can rate their policyholders for 45 percent of their premiums.
“I don’t know how many of those millions of policyholders understand that. They could literally get a bill this year,” said Charles Nice, an insurance expert at Florida State University.
Citizens have imposed assessments only once since their inception in 2002. It happened after five major hurricanes hit Florida in 2004 and 2005.
Giloway, Citizens’ CEO, said at a meeting in July that Citizens has $13.6 billion in reserves to pay insurance claims.
“The citizens are in an exceptional financial position, and we are prepared for whatever comes,” Gilloway said.
At the same meeting, Gilway predicted that the number of citizen policies would rise to 1.2 million by the end of 2022 and 1.55 million by the end of 2023. The number of policies could reach 1.9 million by the end of 2023.
The bigger their policy base, the less it will be [reserve] Nice said.
Nice also fears that citizens are not equipped to deal with the hundreds of thousands of claims that a major storm could generate.
“It will be difficult for citizens to properly serve the one million policy holders,” said Nice. “When they go from 400,000 policies to a million, do they have the resources? It’s a very tough job market.”
Although Florida lawmakers and officials want to rebuild the state’s insurance industry, they will have to overcome barriers such as favorable insurance premiums for citizens.
State law prohibits citizens from increasing average rates by more than 11 percent per year.
Earlier this year, citizens sought a 10.7 percent increase. But the Florida Bureau of Insurance Regulatory approved an average increase of 7.4 percent.
At the same time, private sector insurers received price increases of 30% to 50%.
The result is that Citizens has become the largest property insurer in the state by a large margin, and many policyholders are paying far less expensive rates than they would the insurer.
Citizens sell insurance at a loss. “There is no better way to say it,” said Friedlander of the Insurance Institute.
The discounted rates added to the difficulties facing insurance companies, said Ulrich of the Insurance Agents Group.
“There are companies that want to write business, but you simply can’t do it when the citizens’ premium is 30 to 40 percent lower than what the voluntary market mandates,” Ulrich said.
Ulrich said the state legislature is likely to consider increasing the maximum annual rate for citizens when lawmakers meet for the regulation session in March, although he doubts they will take such action.
“Now, with over a million Citizens insured voters, there will likely be no desire to do so because of the number of components that will be affected,” Ulrich said.
Even if private coverage becomes available, Ulrich said, many citizen policyholders will resist returning to the commercial market because citizen claim payments are guaranteed.
“There will be a great many citizen policyholders who will say, ‘I don’t want to leave, I don’t have to leave,'” Ulrich said.