Blog

Getting insurance coverage from state-owned Citizens Property Insurance Corp. could become more expensive if state lawmakers agree that the company’s artificially low rates are hurting Florida’s private insurance market.

Citizens wants to be the insurer of last resort, and not the insurer with the lowest premiums.

Homeowners have turned to Citizens over the past three years as spiraling losses have forced private market companies to fold, raise rates, and stop writing new business in the state. Since 2019, Citizens’ policy count has increased from about 420,000 to 1.13 million, and Citizens projects it will increase to 1.68 million by the end of next year.

Company leaders are hoping that the Florida Legislature, during a special session on insurance issues scheduled next week, will consider measures that would make the company less financially appealing to customers and compel them back to a more-expensive private company.

A proclamation announcing the special session listed, among numerous goals, an intention to enact reforms that would “foster the transition” of Citizens policies to the private insurance market.

Officials have long said the most effective way to accomplish that goal would be to hike Citizens’ costs.

No specific bills have been filed for the special session, but Citizens officials acknowledged Wednesday that they have had discussions with leaders of the state House and Senate and governor’s office to convey what they would like to see enacted.

Barry Gilway, Citizens’ president and CEO, on Wednesday told the company’s Board of Governors that Citizens’ average premium of $3,227 is 44% lower than the $5,788 average that the private-market customer pays.

“We’re not a residual [last-chance] market, we’re competing openly with the private marketplace. We don’t want to, but we are,” Gilway said. Later he added, “The reality is we are ridiculously competitive and we need relief relative to overall rates.”

In 2021, average Citizens premiums were 36% lower than the private market. The spread was wider in counties north of the South Florida metro area — more than 50% less in Pinellas or Pasco counties, he said — and “maybe” 20% lower in Broward and Miami-Dade counties.

“You’ve got insureds who are coming to us from insolvent insurers and we’re saying, ‘Welcome, here’s a 30% discount.’”

Gilway called for a “fundamental fix” that would bring Citizens’ rates close to what’s known in insurance circles as “actuarial soundness” — which means what a normally functioning company would need to charge in the private market to pay off all claims, cover overhead and make a small profit.

But Citizens isn’t a normal company, and it’s been providing artificially low rates since at least 2007, when then-freshly elected Gov. Charlie Crist convinced the legislature to temporarily freeze Citizens rates. In 2009, Crist and the Legislature ended the freeze but enacted a new law that prohibited average annual rate increases of more than 10%.

Prior to the price freeze, Citizens’ rates were calculated using a formula designed to ensure they remained more expensive than the 20 largest private market insurers. The formula was intended to prevent Citizens’ rates from becoming too attractive to homeowners, and to keep the company as the insurer of last resort.

Instead, the 10% rate cap drove Citizens’ rates lower as private market companies were allowed to raise rates 20%, 30%, 40% and more.

Citizens can keep rates artificially low because, among other reasons, it’s not required to turn a profit on operations and is able to generate income off of its $4.4 billion surplus, which was $6.8 billion before factoring in $2.4 billion in losses from Hurricane Ian this fall.

In 2021, Gov. DeSantis signed a bill allowing Citizens to increase the rate cap each year from 10% by an additional 1% a year over five years. The first increase, to 11%, took effect on Aug. 1 and the second hike to 12% will take effect on Jan. 1.

But the Florida Office of Insurance Regulation in June rejected a bid by Citizens’ Board of Governors to raise all customers’ rates by the new maximums, saying their methodology for determining those increases differed from historical norms that required rate decreases for some customers where warranted.

During Wednesday’s meeting and at a Florida Chamber-sponsored insurance summit the previous day in Orlando, Citizens officials signaled that they haven’t given up trying to persuade the Legislature to enact measures that would increase the company’s rates.

“I do believe Citizens will be on the table next week,” said Christine Ashburn, the company’s chief of communications, legislative and external affairs, at the insurance summit on Tuesday.

Which ideas might emerge for debate during the session — and how many lawmakers would be willing to vote for ideas that would increase, and not lower, homeowners’ insurance rates — remains to be seen. Gilway mentioned pitching two specific reform proposals but said he had no idea whether any would show up in bills to be filed for the session, which begins Monday.

Citizens officials mentioned several ideas on Tuesday and Wednesday that have been previously raised but not enacted:

• Returning to the pre-Crist era requirement that Citizens’ rates must be higher than rates available in the private market.
• Requiring new policies to be priced at actuarially sound or “uncapped” rates, with exceptions if increases would be excessive and pose a hardship.
• Requiring Citizens’ customers to leave the company if a private company offer comes in that’s not more than 20% higher than the existing premium. That’s the eligibility threshold for new customers, and extending it to renewals would encourage customers to move into private carriers, Citizens officials believe. Currently, existing customers can remain at Citizens if no company makes a lower offer for identical coverage at the annual renewal period. Customers notified of a take-out offer during their policy term can decline the offer for any reason, regardless of the offered rate.

Tightening eligibility thresholds, Ashburn said at the summit, would encourage investment in private-market companies. Reforms would create a large pool of eligible customers with no pending litigation or open claims for private companies to take out and rely on to build a profitable book of business.