Cutting Citizens to 800,000 policies is a good start. Frankly I don’t think they need to be that large. The private market would probably absorb the vast majority of Citizens if it were allowed to work.
Math doesen’t compute. Drop 7,500 homes from 1.4M homes they currently insure and that gets you down to 800,000. No wonder we are in trouble.
Lowering liability limits from $300,000 down to $100,000 supposedly lowers PML by $2B. Whenever was there a Cat loss on home owners liability?
what a sad state of affairs we have here in Florida. First the State discouraged all the viable insurance companies from writing coverage by refusing to grant rate increases. (remember the St Paul/MetLife Pak-II?) Then they allow underfunded companies (Magnolia) to write thousands of policies. Thus creating the need for hundreds of thousands of people to rely on the most inefficient insurance company of all time (Citizens). And now, they want to “skinny” the coverage on policies where the insureds have little or no alternate choice. Is Irag or Iran any worse than this?
Yes, it is a “sad state” but I applaud Rick Scott for trying to fix this mess. A lot of damage was done by Charlie Christ when he pushed carriers out of FL and relaxed the guidelines for Citizens. But I guess he has the last laugh now as he and Morgan & Morgan pick our pockets.
Stripping coverages, raising rates and forcing people to into takeout offers will not drop the policy count from 1.5 million to 800k. The problem is there isn’t enough capital in the private sector to absorb this exposure.
If the Citizens book was so attractive carriers would beating down their doors to takeout risk. The takeout activity the last couple years has been minimal. Why? No capital in the market and what little capital there is has been used to cherry picking off non-renewals from other carriers like State Farm and Allstate. any agent who has a Citizens book knows that a majority of there clients are in Citizens because they have no other choice.
Even if Citizens is successful in chasing away a couple hundred thousand people, it will be some of their better risk which is currently helping to balance their portfolio. As the board member confirmed, they will be left with older homes in the areas posing the greatest risk to the state. Northern Capital and Magnolia both failed as a result of a similiar business model. That was without a hurricane.
The governor needs to focus his efforts on trying to bring the billions of capital needed back to Florida and then promote an orderly depopulation program. Another alternative is the creation of a statewide wind pool which will hopefully attract carriers back to Florida to service the risk and provide coverage for everything else.
In the end we are going to be left with a million people facing high deductibles, assessments and having to pay for losses of things like pool cages. Added up the out-of-pockets will be in the 10k to 15k range per household after the next hurricane. Hope everyone has that kind of cash lying around.
There’s billions in private capital just sitting there waiting for our exposure. Citizens needs to be out of the picture as a competitor for that money to be put to use. Allowing for a massive rate increase combined with allowing E&S markets to take out business would be a nice start combined with other efforts to make coverage less desirable.
Citizens isn’t keeping the capital on the sidelines. Citizens is rate adaquete in many territories around the state. They have even taken decreases on some products were appropriate and have also not had a need to take a full 10% increase on others in the last 3 rate filings.
Agressive rate regulation, politicians and the ever attacking media is what keep’s the real capital out of Florida. Gutting the Citizens product isn’t going to change this reality. In the short term all it’s going to is encourage the start-ups to follow suit. How many are now only offering a 10% sinkhole deductible. By year end, most will eliminate the option to cover screen enclosures (even the buyback option) too since they are no longer competiting against Citizens.
The billions you make reference too are in FLorida. This resources are being redirected to Florida via the reinsurance providers. Why would a company want to provide front line exposure coverage when they can sit behind the scenes and make billions without having to handle a single claim. When the wind does blow again, all they have to do is write a check and someone else, less qualified of course, will be cleaning up the mess.
The model we are operating under in Florida right now isn’t a long term solution to our problems. Citizens is not the answer in Florida either. Attacking the program internally in hopes of driving people out without meaningful alternatives is a waste of time. This might provide marketing opportunities in some parts of Florida for a few start-ups but noting is going to change in the coastal markets of Dade, Broward etc. This approach is not good for the people of Florida.
A few predictions:
Citizens growth will slow to a trickle starting this month and will last through May 2012. 6/1/12 they will still have 1.3 million policyholders.
By June 1st, the start-up market will be at or near capacity (feeding on the Citizens book for 6 months) and many will be forced to shut down in the coastal counties.
Those models are impacting rates but will do little to change capacity in the central segments. As for the coastal models, they confirm that we are close to rate adequecy. Don’t think it’s going to change capacity. Other than a few carriers who are blinded by short term returns, no one wants to deal with the risk. Poor business model long term, at any price. The only way we bring more big players back to the market is through a wind pool apporach limiting exposure to the private sector.
December 8, 2011 at 3:18 pm
CCS says:
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I work for one of these capital sources and we closely monitor the Florida market. In general we still need a 30% – 50% rate increase to deploy unrated capital and 75% – 100% increase to use A rated paper. It shouldn’t surprise anyone that it takes Cat risk adjusted returns between 15% to 25% to put up with the political climate in Florida.
Thank you for your comments. I agree 100%. The problem with attracting the capital you represent, rates for a 250k home in a coastal county would have to be 5k a year to reach acceptible levels for A rated paper. The average premium right now is $2,100.00. Most people can’t afford it. This is why Citizens insures 1.5 million homes and why we need I think we need a state backed wind pool.
I think you are correct about Florida needing a true wind pool. Most risks in Citizens are insurable just not at the current rate. A true wind pool would group those risks that are truely not wanted by the standard market regardless of price.
The insurance problems in Florida can be fixed, unfortunately it will take political will. If Scott only wants to govern for one term, Florida has a shoot because the remedy is political suicide. The long term solution isn’t only about rate adequacy. Mitigation and local zoning policies should be addressed too. How do you tell local govt not to approve revenue generating projects because the cat exposure is too high?
To be honest, I don’t know how FL agents make any money with all the book transfers between carriers. In most of our models, there’s hardly any margin on new business due to acquisition and one time underwriting costs. I would expect the economics to be the same for agencies.
Florida does not need a wind pool but a Hurricane Authority. The peril of wind as in thunderstorms, tornadoes and tropical storms can easily be absorbed by the volunatry markets.
Florida carriers whether Florida domestics or National players like State Farm, Travelers and Allstate no longer have interest in keeping or growing any Capital here. The whole State has become a giant MGA for the reinsurance industry and we are too dependent on foreign capital we have to pay a huge fee to “borrow” should we need it.
Floridians have got to change this but well meaning legislators will not tackle the problem because of the political sensitivity and the fact they are more concerned with re-election than doing what’s best for Florida.
In order to return the Capital to back insurance at the retail level we must establish a Florida Hurricane Authority to take the risk out of the hands of a reinsurnace industry that is preying off all Florida due to scarcity of global capital.
Yes we need a wind policy with a large deductible that is insured by the standard market. We also need the standard market to do their part in florida, they want auto, casualty lines and leave the property to citizens and E&S markets. We need to have stability back in our market.
Cutting Citizens to 800,000 policies is a good start. Frankly I don’t think they need to be that large. The private market would probably absorb the vast majority of Citizens if it were allowed to work.
You gotta love Governor Scott!!!!
Math doesen’t compute. Drop 7,500 homes from 1.4M homes they currently insure and that gets you down to 800,000. No wonder we are in trouble.
Lowering liability limits from $300,000 down to $100,000 supposedly lowers PML by $2B. Whenever was there a Cat loss on home owners liability?
what a sad state of affairs we have here in Florida. First the State discouraged all the viable insurance companies from writing coverage by refusing to grant rate increases. (remember the St Paul/MetLife Pak-II?) Then they allow underfunded companies (Magnolia) to write thousands of policies. Thus creating the need for hundreds of thousands of people to rely on the most inefficient insurance company of all time (Citizens). And now, they want to “skinny” the coverage on policies where the insureds have little or no alternate choice. Is Irag or Iran any worse than this?
Yes, it is a “sad state” but I applaud Rick Scott for trying to fix this mess. A lot of damage was done by Charlie Christ when he pushed carriers out of FL and relaxed the guidelines for Citizens. But I guess he has the last laugh now as he and Morgan & Morgan pick our pockets.
Stripping coverages, raising rates and forcing people to into takeout offers will not drop the policy count from 1.5 million to 800k. The problem is there isn’t enough capital in the private sector to absorb this exposure.
If the Citizens book was so attractive carriers would beating down their doors to takeout risk. The takeout activity the last couple years has been minimal. Why? No capital in the market and what little capital there is has been used to cherry picking off non-renewals from other carriers like State Farm and Allstate. any agent who has a Citizens book knows that a majority of there clients are in Citizens because they have no other choice.
Even if Citizens is successful in chasing away a couple hundred thousand people, it will be some of their better risk which is currently helping to balance their portfolio. As the board member confirmed, they will be left with older homes in the areas posing the greatest risk to the state. Northern Capital and Magnolia both failed as a result of a similiar business model. That was without a hurricane.
The governor needs to focus his efforts on trying to bring the billions of capital needed back to Florida and then promote an orderly depopulation program. Another alternative is the creation of a statewide wind pool which will hopefully attract carriers back to Florida to service the risk and provide coverage for everything else.
In the end we are going to be left with a million people facing high deductibles, assessments and having to pay for losses of things like pool cages. Added up the out-of-pockets will be in the 10k to 15k range per household after the next hurricane. Hope everyone has that kind of cash lying around.
There’s billions in private capital just sitting there waiting for our exposure. Citizens needs to be out of the picture as a competitor for that money to be put to use. Allowing for a massive rate increase combined with allowing E&S markets to take out business would be a nice start combined with other efforts to make coverage less desirable.
Citizens isn’t keeping the capital on the sidelines. Citizens is rate adaquete in many territories around the state. They have even taken decreases on some products were appropriate and have also not had a need to take a full 10% increase on others in the last 3 rate filings.
Agressive rate regulation, politicians and the ever attacking media is what keep’s the real capital out of Florida. Gutting the Citizens product isn’t going to change this reality. In the short term all it’s going to is encourage the start-ups to follow suit. How many are now only offering a 10% sinkhole deductible. By year end, most will eliminate the option to cover screen enclosures (even the buyback option) too since they are no longer competiting against Citizens.
The billions you make reference too are in FLorida. This resources are being redirected to Florida via the reinsurance providers. Why would a company want to provide front line exposure coverage when they can sit behind the scenes and make billions without having to handle a single claim. When the wind does blow again, all they have to do is write a check and someone else, less qualified of course, will be cleaning up the mess.
The model we are operating under in Florida right now isn’t a long term solution to our problems. Citizens is not the answer in Florida either. Attacking the program internally in hopes of driving people out without meaningful alternatives is a waste of time. This might provide marketing opportunities in some parts of Florida for a few start-ups but noting is going to change in the coastal markets of Dade, Broward etc. This approach is not good for the people of Florida.
A few predictions:
Citizens growth will slow to a trickle starting this month and will last through May 2012. 6/1/12 they will still have 1.3 million policyholders.
By June 1st, the start-up market will be at or near capacity (feeding on the Citizens book for 6 months) and many will be forced to shut down in the coastal counties.
You fail to take new cat models into your predictions. Central and North Florida fared much worse while much of Coastal Florida fared slightly better.
Those models are impacting rates but will do little to change capacity in the central segments. As for the coastal models, they confirm that we are close to rate adequecy. Don’t think it’s going to change capacity. Other than a few carriers who are blinded by short term returns, no one wants to deal with the risk. Poor business model long term, at any price. The only way we bring more big players back to the market is through a wind pool apporach limiting exposure to the private sector.
I work for one of these capital sources and we closely monitor the Florida market. In general we still need a 30% – 50% rate increase to deploy unrated capital and 75% – 100% increase to use A rated paper. It shouldn’t surprise anyone that it takes Cat risk adjusted returns between 15% to 25% to put up with the political climate in Florida.
Thank you for your comments. I agree 100%. The problem with attracting the capital you represent, rates for a 250k home in a coastal county would have to be 5k a year to reach acceptible levels for A rated paper. The average premium right now is $2,100.00. Most people can’t afford it. This is why Citizens insures 1.5 million homes and why we need I think we need a state backed wind pool.
I think you are correct about Florida needing a true wind pool. Most risks in Citizens are insurable just not at the current rate. A true wind pool would group those risks that are truely not wanted by the standard market regardless of price.
The insurance problems in Florida can be fixed, unfortunately it will take political will. If Scott only wants to govern for one term, Florida has a shoot because the remedy is political suicide. The long term solution isn’t only about rate adequacy. Mitigation and local zoning policies should be addressed too. How do you tell local govt not to approve revenue generating projects because the cat exposure is too high?
To be honest, I don’t know how FL agents make any money with all the book transfers between carriers. In most of our models, there’s hardly any margin on new business due to acquisition and one time underwriting costs. I would expect the economics to be the same for agencies.
CSC,
Florida does not need a wind pool but a Hurricane Authority. The peril of wind as in thunderstorms, tornadoes and tropical storms can easily be absorbed by the volunatry markets.
Florida carriers whether Florida domestics or National players like State Farm, Travelers and Allstate no longer have interest in keeping or growing any Capital here. The whole State has become a giant MGA for the reinsurance industry and we are too dependent on foreign capital we have to pay a huge fee to “borrow” should we need it.
Floridians have got to change this but well meaning legislators will not tackle the problem because of the political sensitivity and the fact they are more concerned with re-election than doing what’s best for Florida.
In order to return the Capital to back insurance at the retail level we must establish a Florida Hurricane Authority to take the risk out of the hands of a reinsurnace industry that is preying off all Florida due to scarcity of global capital.
Yes we need a wind policy with a large deductible that is insured by the standard market. We also need the standard market to do their part in florida, they want auto, casualty lines and leave the property to citizens and E&S markets. We need to have stability back in our market.
Dan,
Don’t know if you saw this article about pending changes at Citizens —
Jim