Florida Market Stabilization Critical to Reducing Citizens’ Exposure: Study

By | January 11, 2021

Florida’s fluctuating and volatile private market may be instigating long-term policy growth for Citizens Property Insurance Corp. and creating serious obstacles to its position as the state’s residual insurer, a study says.

The 236-page “Exposure Reduction and Depopulation Opportunities Analysis,” report from a team at Florida State University looked at how Citizens’ exposure can be reduced and the participation of private market insurers increased so it can fulfill its mission as a residual market.

The study also looked at how mounting losses in the state’s domestic insurance market may continue to impact Citizens’ policy count, which has been steadily growing since last year.

Citizens commissioned the report from FSU in early 2020 at a cost of $265,266. The report was presented to the Citizens Board of Governors at its Dec. 16 meeting.

“Effectively reducing Citizens exposure in the long-term can be accomplished by expanding the availability of coverage by private market insurers,” the study notes. “However, several actions must first be taken to improve the attractiveness of the Florida market.”

The FSU study says Citizens saw an “observable growth” in its policy count in 2020 from 443,228 policies in January to 511,005 by September – an increase of $111.7 billion in exposure to $133.5 billion. Citizens continues to grow by about 3,000 policies per week with its total policy count at about 537,000 in December as private insurers respond to market challenges by restricting capacity and raising rates.

Citizens doesn’t expect a turnaround any time soon after Florida carriers experienced a total of $1.2 billion in operating losses through the third quarter of 2020.

The insurer, formed in 2002 by the Florida Legislature, reached a high of 1.4 million policies that accounted for 23% of the state’s insurance market in 2011 before depopulation efforts, a steady private market and an 11-year hurricane drought brought the insurer to its lowest point of 440,000 policies in 2015. At its peak in 2011, Floridians were on the hook for $11.6 billion in assessments, a charge every Florida residential policyholder paid to ensure Citizens could cover losses in the event of a 1-in-100-year storm. In 2015, Citizens eliminated assessments.

But in recent years, the state’s private insurance market has faced unprecedented losses from litigation and catastrophic events. Because Citizens’ rates are capped on a statutorily required glide path of 10% per year, the residual insurer is becoming a competitive alternative to private insurers.

Market Hindrances to Health of Citizens

FSU’s report identified seven market hindrances that must be addressed for Citizens to reduce its exposures, respond to market constraints and protect its customers, including: Florida’s catastrophic risk exposure; third party involvement/litigation/fraud that is contributing to losses and expenses of insurers operating in Florida; and volatility in legislative/regulatory/administrative actions that add to market uncertainty.

FSU said several notable events have “heightened concerns regarding market disruptions which could result in further increases in Citizens’ exposure,” including insurer adverse loss development or “loss creep” that was not initially anticipated; recent insurer rate filings, starting in 2019, of greater than 15% and indications of a trend towards more double-digit rate increases; and social inflation/third party involvement in claims, such as assignment of benefits (AOB) lawsuits.


The FSU report sought to develop approaches that would “shift the focus to optimal transfer of risk from Citizens to the private market.”

FSU recommended hosting workshops with stakeholders to understand their perception of the Florida market and provide information valuable to potential investors and private market insurers.

It offered 18 other recommendations organized into seven categories. Among the recommendations is attracting investors to the Florida market; increasing the use of loss control by homeowners; reducing system inefficiencies; increasing the availability of quality data to stakeholders; and maintaining the solvency of insurers operating in the Florida market.

Dr. Charles Nyce, member of the FSU team who worked on the study, said at the Dec. 16 board meeting that all 18 recommendations must work together.

“Picking and choosing one approach here and one approach there probably doesn’t get it done,” he said. “It’s going to take a concise, coordinated effort among all the stakeholders with all of these different approaches coming into play.”

Ultimately, Florida’s insurance market volatility is Citizens’ biggest hurdle, and it will take time to enact strategies and see enough of a shift in its exposure, the study noted.

“The FSU study has provided welcomed input in efforts to better focus Citizens on its role as the state’s insurer of last resort,” Citizens said. “The study will no doubt be referenced often as we and other stakeholders deal with the critical issues facing the Florida property insurance market.”

Topics Florida

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