Citizens Insurance seeks 13% rate hike as Florida reinsurance renewals see 30%+ increase

Over the past three years, Florida residents have flocked to state-backed Citizens Property Insurance Corp. as they sought refuge from soaring home insurance rates. Citizens, which was created in 2002 as an insurer of last resort for homeowners unable to find insurance coverage in the private market, now finds itself in a precarious position as Florida’s largest insurance carrier. Now it seeks to “depopulate” and has asked the Florida Office of Insurance Regulation (OIC) for a 13.3% rate increase.

Citizens’ explosive growth is not only attributed to skyrocketing Florida home insurance rates but also an influx of new policyholders who have received non-renewal notices over the past year as four major property and casualty insurance companies have left the state, including Farmers Insurance’s most recent exodus.

Last week, Citizens added more than 5,500 new policies, totaling 1,322,696 policies. It’s on target now to have over 1.7 million policies by the end of the year, according to President and CEO Tim Cerio, who now looks to return the insurer to its original position as a last-resort option for home insurance.

“We have to return to being the state’s property insurer of last resort,” Cerio said Wednesday during a meeting of the Citizens Board of Governors. “Instead, we are the state’s largest property insurer with the lowest rates on top of that. That is going to continue to distort the market and impede recovery efforts.”

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Cerio says these rate increases could give Florida homeowners with policies through private insurers a possible reprieve when it comes to being forced to pay for assessments, which Citizens can collect from all Florida policyholders to help pay out hurricane claims when it doesn’t have money to cover them.

Insurance Commissioner Mike Yaworsky already approved a request in April by the Florida Insurance Guaranty Association (FIGA) to collect a 1% emergency “assessment” to cover the cost of claims that have gone unpaid due to property insurers going insolvent.

FIGA is a non-profit agency created by the state to handle claims when insurers become insolvent and has issued a number of assessments over the years as Florida’s insurance market has dwindled.

FIGA borrowed $150 million in short-term financing and will then issue up to $750 million in bonds to pay off that initial financing and to pay the remaining claims. Policyholders will continue paying the 1% assessment until those bonds have been paid.

Florida reinsurance renewals see steep 30%-50% increase

This news is compounded by reports that private Florida insurance carriers experienced a sharp increase in reinsurance renewal prices. Reinsurance, which is basically insurance for insurers, is necessary to help mitigate the financial burden of paying for claims out of pocket. Insurers purchase reinsurance to offset these costs by transferring risk to reinsurance companies, allowing private insurers to remain solvent by recovering all or part of a payout.

Reinsurance renewals in Florida saw 30%-50% increases, according to reports from Aon and Gallagher Re reports last week. Non-Florida risks were up 10%-20%. Policyholders will feel the impact of those increases when they open up their renewal letters.

The report does have a silver lining, however. Those rising costs mean there’s enough supply to clear renewals, cutting the chances that homeowners are met with non-renewal notices.

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Florida homeowners are running out of options in the private market

If approved, it’s unclear whether Citizens’ rate hike will ultimately make any headway toward its goal of reducing its number of policies.

Florida residents are eligible for Citizens policies if they are unable to find comparable coverage in the private market or if the premiums a homeowner receives are more than 20% higher than a comparable Citizens policy.

Citizens’ rate increase is a bid to shrink the number of policies that meet that eligibility, but it’s yet to be seen if the proposed increase would be enough to bridge the growing divide as private insurers’ rates continue to soar.

And for homeowners who could be dropped from Citizens, should the rate hike be approved, they’ll find themselves in a dwindling market as more insurance companies stop writing policies in the state or become insolvent.

This article originally appeared on Pensacola News Journal: Florida's Citizens Insurance seeks double-digit rate increase