Recent developments have sparked new debate about the role that Citizens Property Insurance Corp. should play in Florida’s rapidly shifting property insurance market, with potential changes that could affect agents, other carriers and homeowners for years to come.
At a Citizens committee meeting last week, Florida regulator Susanne Murphy revealed that the Office of Insurance Regulation is now considering waiving Citizens’ $700,000 coverage limit for upscale homes, at least in some counties. Agents have said that the change is badly needed: Their options are more limited than ever in parts of the state where home values have soared and primary market carriers have pulled back or have restricted coverage in the middle of hurricane season.
But others warn that such a move won’t help depopulate the largest insurer in the state and could deepen Citizens’ exposure in an era of stronger storms.
“That’s a decision OIR will have to make,” said Barry Gilway, CEO and executive director of Citizens. But, he added, with Citizens topping 1 million policies this summer and continuing to grow, “it’s probably something that should be avoided.”
In the last year or so, Citizens has had to terminate some 3,300 policies in the state because home values and coverage exceeded $700,000, Gilway said. And another 14,000 policies are knocking at the door, covering properties that are in the $600,000 to $700,000 range, Citizens’ chief operating officer, Kelly Booten, reported.
Also last week, Florida State University’s risk management and insurance program, in an academic paper soon to be published, revisited the idea of moving all wind policies to Citizens, allowing other insurers to write only the less-costly water and other perils.
“Since hurricane wind coverage is difficult to insure profitably, it might be strategically and economically prudent to intentionally remove it from the primary market,” reads the FSU paper. “With recent legislation (Senate Bill 76, 2021) allowing Citizens to increase rates gradually over the next few years and the ability to assess policyholders in the event of a deficit, Citizens may be in a better position to insure wind than the primary insurers.”
And Florida regulators are also asking for $1.5 million to have a consultant examine new options for property insurers that are facing financial ratings downgrades – an indication that a plan to utilize Citizens as a type of reinsurer for struggling companies may not help stabilize the market.
Raising the Coverage Cap
Murphy, the state’s deputy insurance commissioner, said that state law allows the office to waive Citizens’ Coverage A limit in counties that do not have sufficient competition from private carriers. The state took that step in 2014, raising the cap to $1 million, but only in Miami-Dade and Monroe counties, on Florida’s southern tip.
Proving there’s a dearth of primary carriers in other Florida counties may be more difficult, and Murphy said the OIR is looking for all the data it can find.
“Whether there’s enough data to support that finding is what we’re trying to determine. The last time we did this it was pretty clear, but the data we’ve looked at thus far this year is not as clear,” Murphy told the Citizens Market Accountability Advisory Committee on Aug. 31.
To help, the Florida Association of Insurance Agents plans to work with OIR to develop data points that member agents can help supply.
It wasn’t made clear what data is lacking. The OIR already receives a great deal of information from carriers, including policies in force and exposure per county, even if all of that data is not made public in quarterly reports. The OIR’s Quarterly and Supplemental Reporting System, known as the QUASR, shows a range of information on dozens of Florida carriers. But a number of carriers consider the data to be trade secrets, and have elected not to have it made public.
Murphy said the OIR could have the review completed within six weeks or so.
Some insurance industry experts aren’t so sure about the idea.
“I’m not sure why that’s needed,” said Melissa Burt DeVriese, president of Ormond Beach-based Security First Insurance Co. “We’re open for business and we write up to $2.5 million in coverage.”
“Raising the Coverage A cap would certainly send more policies to Citizens, increasing its exposure” as well as the potential for a surcharge on all policyholders in the state if Citizens faces heavy storm losses, explained John Rollins, an actuary and former insurance company vice president.
And although Citizens officials are quick to point out that an assessment to help cover losses would be placed only on policyholders, not taxpayers, storm losses could ultimately affect Florida’s sparkling credit rating, simply because Citizens in some ways is considered to be a state agency, said professor Charles Nyce.
Nyce is associate FSU professor of risk management and insurance whose doctoral students researched and wrote the paper examining the state of the Florida insurance market.
Citizens for Wind?
On making Citizens the insurer for wind damage in Florida, as suggested in the FSU paper, DeVriese said that, too, is unnecessary.
“Wind coverage is not what is ailing the Florida property insurance market – it’s abuse of assignment of benefits and frivolous litigation,” she said last week.
Nyce agreed that making Citizens the sole wind writer, an idea similar to one considered by lawmakers after Hurricane Andrew, is a departure from a market-based, capitalism system.
“Typically, I’m more of a free-market person, but the large insurance companies have already decided they don’t want to be in Florida,” Nyce said. “So you’re left with smaller companies who don’t have much negotiating power with reinsurers and who aren’t very diversified.”
The FSU paper’s suggestion on wind coverage, along with OIR’s exploration of raising the coverage cap, has helped put a new spotlight on Citizens’ function in Florida’s distressed marketplace.
“It’s up to our elected officials now to decide if Citizens is really the insurer of last resort or is it to be a large force in the homeowners insurance market,” DeVriese said.
The Florida State paper examines other aspects of the Florida market, including the growth of claims litigation and fraud and the use of Florida-specific subsidiaries by some national carriers after Hurricane Andrew slammed south Florida in 1992.
One example of those subsidiaries, which the paper calls a “pup” company, is part of Allstate Insurance. Castle Key Insurance is now one of the largest property insurers in Florida, with more than 293,000 policies in force this year, according to the QUASR report.
On the financial ratings question, the Florida Department of Financial Services recently submitted a proposal to the state’s Joint Legislative Budget Commission, which meets this week, WINK TV news station reported.
The proposal asks for $1.5 million to fund a study into alternatives for Florida insurers, many of which now rely solely on the Demotech rating firm. Demotech has downgraded several carriers this year, which could ultimately mean homeowners with mortgages could have to find new insurance or be force-placed.
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