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Two more property insurers, including one of the largest insurers in Florida, have stopped writing new policies in the state, marking the fifth and sixth carriers this year to pull back from the turbulent Florida waters.

“At this time, St. Johns Insurance has made the difficult decision to suspend all new business writing statewide as of Feb. 15, 2022,” the company said in a bulletin sent to its agents.

The St. Johns closure applies to all lines of business. Any outstanding quotes had to be bound in the system by 6 p.m. Tuesday, the bulletin noted.

The Orlando-based St. Johns is listed as the eighth-largest homeowners carrier in Florida, with more than 160,000 policies, according to a list maintained by the Florida Association of Public Insurance Adjusters.

Later Tuesday, word spread that Lighthouse Insurance also had stopped writing new business.

“As we manage our reinsurance placement options, Lighthouse has made the difficult decision to suspend new business writing for all products in Florida, effective end of business today,” reads a bulletin sent to agents on Tuesday.

Lighthouse said it would honor any policies quoted Tuesday or before, with effective dates on or before Feb. 28.

The news about struggling insurance carriers in Florida has become almost routine. In the past three months, some of the best-known insurers have said they will stop writing new homeowner policies or won’t renew thousands. These include United Property & Casualty, TypTap, Florida Farm Bureau, and Progressive.

One Florida property insurance insider called a market meltdown, and other carriers will likely soon follow.

St. Johns executives could not be reached for comment Tuesday. The one-page bulletin briefly explains that the suspension is one of several actions the company has taken recently.

“In an effort to maintain balance within our portfolio, we have been employing many strategies to manage our risks: non-renewals, new business eligibility rules, rate changes, overall exposures in territories and portfolio performance,” the bulletin reads. “Sometimes, adjustments may be needed in order to adapt to the ever-changing marketplace.”

Florida agents that sell St. Johns’ policies said that the announcement did not come as a surprise in a state that has been squeezed by storm losses, spiraling claims litigation costs, and higher reinsurance prices.

“St. Johns has been pulling back for a while and increasing premiums, pushing people away,” said Chris Coulter, a managing agent in Orlando associated with the Robert O’Neil Insurance agency.

While an almost-unprecedented number of companies have pulled back from the Florida market in recent months, other carriers can still be found to write homeowners insurance, Coulter said.

“It all depends on what part of the state you’re in,” he said.

Policyholders are taking notice, though, especially with spikes in premiums this year.

“Everyone is seeing rate increases, especially when they get that letter in the mail that they have an escrow shortage,” said Bryan Madril, owner of the Madril Agency in Pensacola, which has sold St. Johns policies for a number of years.

The loss of St. Johns is not a major blow to Madril’s business, but it will force agents to scramble to find new carriers for homeowners.

“They were a good fit for us,” Madril said. “We’ll have to look for alternative markets.”

St. Johns is a privately held company that was established in 2003. It is owned by the St. Johns Holding Co. and the majority shareholder is St. James Insurance Group, a managing general agency, according to the company website.

Jesse Schalk is president and Jonathan Mertz is chief operating officer.

A company balance sheet shows that as of December 31, 2020, the company had $153 million in assets and $106 million in liabilities, along with $46 million in surplus.

Last week, the company asked for a use-and-file rate increase of 12% on HO-3 policies and a 15% increase in condo or HO-6 policies, for a total of 169,335 policies in the state. St. Johns also asked for a 14.9% increase on dwelling fire policies. That followed an 8.8% increase for some base rates, filed in September, according to an explanatory memo filed with the Florida Office of Insurance Regulation.

Lighthouse was founded in 2008 and is authorized to write in Florida, Louisiana, North Carolina, South Carolina and Texas.

Insurance industry advocates have said the rate increases and writing suspensions show that the Florida market is in deep crisis, affecting homeowners, businesses and the real estate market. Many have pinned their hopes on more legislation that could help curb claims litigation and roof-replacement costs, among other changes.

The most comprehensive measure, Senate Bill 1728, by Sen. Jim Boyd, passed the Senate Banking and Insurance Committee earlier this month and is on the agenda for Wednesday’s meeting of a Senate Appropriations Committee subcommittee.

“That’s the number one question we’ve been getting from agents: ‘What is the Legislature going to do to help,'” said B.G. Murphy, director of government affairs for the Florida Association of Insurance Agents.

The cost of homeowners insurance is on the rise, and not just because property values went up — almost 20% across the board — during last year’s homebuying frenzy.

How high insurance costs may go is anybody’s guess at this time. But the Federal Emergency Management Agency is now operating under a new flood insurance rate structure that changes how it looks at risk.

Furthermore, the growing number of natural disasters is forcing insurers to reevaluate their risk, with the end result almost assuredly being higher premiums. Weather is even starting to inform lending decisions, with the distinct possibility that lenders will charge more for loans in high-risk areas — or not write them at all.

Weather events always are a threat. But during last year’s first nine months alone, the National Centers for Environmental Information counted a record 18 major storms, each with losses exceeding $1 billion.

Such events are why, back in 1968, lawmakers created the National Flood Insurance Program to protect property owners from flood losses. The NFIP also protects taxpayers who fund the program by reducing Uncle Sam’s exposure. But almost annually, the NFIP well runs dry and requires additional appropriations from Congress, which, after years of inaction, has yet to reconstitute the program so it remains solvent.

Speaking of dry, as of Dec. 1, the NCEI also says moderate to exceptional drought conditions cover nearly half the country. So more disasters unrelated to flooding are in the offing, too.

To bolster its balance sheet, FEMA, which oversees the flood insurance program, has switched gears. Instead of rating risk solely on whether a house is located in a flood zone or not, the new formula looks at a variety of factors, including distance to a flood source, the severity and frequency of flooding, and property characteristics such as the cost to rebuild the property in the event of damage.

The result: Some 3.3 million homeowners who currently have coverage will pay more, according to a study from Porch, a provider of software and services to several home service industries.

The typical NFIP premium is $734 annually. FEMA predicts that 77% of those with flood insurance will see a price increase — a hike of about $88 a year for most, according to Porch’s calculations, but some by as much as $240 per year — with the remainder enjoying a lower premium. For those hit hardest, the increase will be spread over a few years.

Granted, this only impacts owners who reside within a specified flood zone. But since floods can happen anywhere, anytime and for many reasons, it is a good idea to obtain coverage no matter where you live.

Floods are not covered by your homeowners insurance, but the costs of those policies are headed up, too.

“The growing number of climate events has left the insurance business reeling,” says Jennifer Rasmussen, the author of a new white paper detailing what lies ahead for policy holders. “As the intensity and scope of future catastrophes grow, insurance rates for property owners will likely rise significantly,” says Rasmussen, a vice president at SitusAMC, a technology provider in the real estate finance business.

According to LexisNexis, 39% of all home insurance claims in 2020 were due to catastrophic weather. And the SitusAMC paper says the rise in the number of severe hurricanes, wildfires, tornadoes and other weather events linked to climate change has created significant risk for insurance companies.

The impact is not limited to the coasts, either. Winter storms in Texas, for example, accounted for 40% of total property losses for insurers in the first half of 2021, and nonprofit Climate Central says the Lone Star State, not California, has the highest threat level for wildfires, with 72% of the state’s population at risk.

Of course, recent demographic and migration trends are exacerbating the problem as more people move to flood- and fire-prone regions. A projected 1.2 million more houses will be at risk of flooding over the next 30 years, according to data from the First Street Foundation.

All of this has the mortgage business on edge as companies decide what to insure and at what cost. Some lenders have already started incorporating ATTOM Data Solutions’ climate data into their decision-making scenarios, says the firm’s Todd Teta. And more can be expected to do so.

A report from the research affiliate of the Mortgage Bankers Association says lenders “will not be spared” from the ravages of climate change. The physical destruction caused by extreme weather events will “influence the behavior” of lenders, investors and government-backed loan programs, it says.

The report says severe weather could lead to more mortgage defaults, placing increasing stress on housing and housing finance’s sophisticated system of distributing risk across multiple stakeholders, including consumers, homebuilders, appraisers, originators and mortgage investors.

MBA officials say high-level industry discussions have taken place about incorporating weather-related risk into underwriting decisions. But Chief Economist Mike Fratantoni says that while regional climate models offer enough data, that’s not the case for property-level decisions. “There just isn’t enough information to make the call,” he says.

Meanwhile, the Federal Housing Finance Agency, which oversees Fannie Mae, Freddie Mac and the Federal Home Loan Banks, has told these key entities to designate climate change as a priority concern, and to actively consider its effects in their purchasing decisions.

Eventually, lenders could charge a higher rate for a loan on a higher-risk property. They could require a larger down payment or a larger homeowners insurance policy — perhaps even some sort of disaster policy. Or they just may not make the loan at all.

Citizens Property Insurance Corp. is reminding agents that it is greatly expanding the number of property inspections, starting this month, in an effort to reduce its exposure.

The inspections will come at no cost to the policyholder, and will be done by third-party inspection services. Agents will be notified and will be asked to verify the policyholder’s contact information. If property owners refuse to allow inspectors to have access to the property, the policy may be canceled or non-renewed, Citizens said in a bulletin posted last week.

Citizens, Florida’s property insurer of last resort, announced in October that it would increase the number of inspections almost 70-fold over the next four years. The number of inspections will jump from about 5,200 in 2020 to more than 350,000 by 2025.

The move will cost some $43 million, but Citizen officials say it is needed to stem the flood of new policyholders that have flocked to Citizens in recent years, as other insurers have raised rates, become insolvent, or stopped writing in Florida.

The program is a huge shift for Citizens and will take the insurer from inspecting about 1% of its policyholder properties in 2020 to more than 20% by 2025. Ultimately, some policyholders will end up paying higher premiums or spending more on repair work to bring homes up to par.

A Citizens spokesman said the motivation behind the increased inspections is not necessarily to cancel or non-renew policies.

“Our primary goal is to determine that properties are accurately and appropriately insured with Citizens by making sure that properties meet minimum standards,” said MIchael Peltier, media relations manager. “This will also make it easier for private companies looking at Citizens policies for take out offers because they will have up-to-date property information.”

Fourteen alleged insurance fraudsters are awaiting court action after they were arrested last week in southwest Florida.

In Manatee County, south of Tampa, 13 men were caught in a sting operation and charged with contracting without a license and failing to have workers’ compensation insurance on their workers, the Manatee County Sheriff’s Office said in a news release.

The sheriff’s office did not say how the sting went down. But in similar operations in recent years, authorities advertised for bids on a local residential construction project. When the contractors arrived to look at the property, authorities checked state databases and found the men to be operating outside state law and regulations. The operation was conducted in conjunction with investigators from the Florida Department of Financial Services, the National Insurance Crime Bureau.

“The purpose of the operation was to address unlicensed contractors who are working without the required contractor license and engaging in construction-class work without the required workers’ compensation insurance exemptions,” the sheriff’s office said.

Those arrested were:

Jake Gratkowski, Oved Otachy, Robert Pinas, Carlos Pena, Harold Leventry, Loren Leonard, Robert Edwards, John Small, Jonathan Pipes, Andrei Razmeritsa, Earl Brown, David Lamothe and Junio Goncalves-Fonseca.

In Naples, Florida, a former insurance agent, jailed a decade ago for pocketing premiums, was arrested last week on charges of leaving the scene of an accident.

Kenneth Elliott won local fame in 2011, when he was convicted of defrauding at least 20 policyholders. He was sent to prison and ordered to pay more than $68,800 in restitution, including $742 to his own mother, according to a report in the Naples Daily News.

Elliott was released from prison in 2018. In March of this year, he was charged with leaving the scene of an automobile accident, but he failed to appear in court and remained at large until last week.

The man has been ordered held without bond. He has applied for indigent status, claiming to have no income or assets. Court records show he has paid only about $11,000 of the restitution he was ordered to pay in 2011.

It’s not just a few Florida property insurance companies that are running into financial trouble. Almost every carrier is losing money in 2021 and the future does not look any better, the CEO of Citizens Property Insurance Co. told lawmakers Tuesday.

“It is an absolute sea of red ink across the industry,” Barry Gilway said at a Florida Senate Banking and Insurance Committee meeting. He showed sobering net income data for carriers, and few bright spots could be found.

“This is not one or two companies that are having problems in the marketplace,” he said. “This is virtually every single company experiencing negative net income – and a direct hit to surplus.”

Gilway said that 52 Florida-domiciled companies write about 79% of the market. They write $13.8 billion in premium but are backed by only $4 billion in surplus. With Florida’s market now on “life support,” and red ink rising, many insurance companies are now finding it almost impossible to obtain new capital.

That forces carriers to go out of business or drop policies and raise premiums, a growing trend that has prompted thousands of homeowners to move to Citizens in the last two years. Citizens’ policies, expected to top 1 million by the end of next year, are reaching unsustainable levels, officials have said.

Tuesday’s committee hearing was held to explore some solutions to the Florida insurance conundrum. Gilway echoed the sentiments of insurance agents, lawmakers and others who have spoken about the problem in recent months. Citizens, he said, was set up to be an insurer of last resort, yet it is limited by law and by regulators on rate increases that now set most Citizen premiums at about half of what private market insurers charge.

“We are in an insane position,” he said. “Here we are, supposed to be the insurer of last resort, but we’re not supposed to be there at 50 cents on the dollar of what private carriers charge.”

More than 90% of Citizen’s single-family homeowner policies are offered at less than what private market insurers charge. In answer to a question from Sen. Doug Broxson, R-Pensacola, Gilway said he is aware of no other state’s residual insurer that has rates so low and competes with the private market.

Sen. Jeff Brandes, R-Bradenton, pointed out the absurdity of Florida’s market. A billionaire from out of state can buy a second home in Florida, with a lower-priced policy from Citizens that is subsidized by taxpayers.

“You’re right on,” Gilway said. “Yes. The system is subsidizing those individuals.”

Sen. Darryl Rouson, D-St. Petersburg, asked if Citizens had a way of tracking insurers who appear to be losing money and have complained about litigation.

“Do you have any data on the performance of insurance companies on denying and delaying claims payments and how that has had an impact on litigation,” Rouson asked.

Gilway said Citizens does not have that data, but that the Florida Office of Insurance Regulation may collect that information.

The federal government Friday rolled out a flood-insurance program revamped to reflect worsening climate change, a program that will raise rates for millions of homeowners in wealthy coastal areas and humble inland communities alike.

The Federal Emergency Management Agency in April announced the first significant update to the beleaguered National Flood Insurance Program, which covers about 5 million properties. Premiums have risen steadily, but the program is more than $20 billion in debt, thanks in part to rising seas and stronger storms. Now, a quarter of the participants will see lower costs, while the remainder will see premiums rise in increments as high as 18% annually. The maximum total increase will be $12,000, a level that will affect only the most expensive real estate.

“Climate change is going to make housing more expensive than it already is,” said Daryl Fairweather, chief economist at Redfin Corp. “This is just a first step.”

FEMA is facing an urgent but unpopular task. The program was created in 1968, when there were fewer major storms and fewer people living by the sea. But the U.S. coastal population grew by over 15.3 percent between 2000 and 2017, to over 94 million. Moreover, many inland places that have seen huge surges in flooding lack accurate maps. A 2017 report from the Department of Homeland Security inspector general found that 58% of FEMA flood maps were wrong or outdated.

The insurance program was originally meant as a backstop for homes that private insurers found too risky. Now, however, it covers 95 percent of residential flood policies. In all, the program sweeps in about 5 million properties, including primary and vacation homes and businesses. Deeply subsidized premiums, averaging under $800 annually, mean that the agency routinely pays out nearly four times what it takes in.

David Maurstad, the program’s senior executive and architect of the overhaul, said that nearly 90% of members would see premiums fall or rise only slightly, rather than the blanket increases of past years.

“The new rating methodology is correcting longstanding inequities,” he said Thursday. “We can no longer continue to ignore the fact that some of our policyholders had been unjustly subsidizing other policyholders. They should no longer bear the cost for the policyholders with higher-value homes, who’ve been paying less than they should.”

Until now, FEMA used a fairly simple methodology developed in the 1970s that based risk ratings on two factors: whether homes were inside a severe flood zone and their elevation within those zones. FEMA says its new model, known as Risk Rating 2.0, is based on huge advances in technology. The leaps include sophisticated catastrophe models that are standard for the private insurance industry, which will allow officials to evaluate individual properties and assess risk fairly.

Hiking premiums may encourage homeowners to think more deeply about the wisdom of living in endangered areas.

“People need to have very difficult conversations about adaptation, about relocating, ” said Laura Lightbody, project director of the Flood-Prepared Communities initiative of the Pew Charitable Trusts. “Price is one of the most clear ways to communicate risks.”

But even large premium increases may not nudge people away from the water. Residents of wealthy vacation spots like Miami Beach, Florida, and New York’s Hamptons can afford them. Kevin McAllister, founder of Defend H20, a Hamptons nonprofit, said that $12,000 is “the cost of a Belgian block driveway or less for these homes.”

Gene Stilwell, executive sales manager at Town & Country Real Estate in East Hampton, said many residents will take the revamped program in stride.

“It’s worth it,” he said. “If something happens, they have the means to reconstruct and rebuild and fix whatever flood damage has occurred.”

Meanwhile, many other places with scant resources will be feeling painful increases for the first time. An $800 policy that increases 18 percent over 10 years would be $4,188, a significant increase for someone on a budget.

Last week, senators including Democrats Chuck Schumer of New York and Robert Menendez of New Jersey, and Republican Marco Rubio of Florida wrote FEMA to ask that the roll-out be delayed, arguing that too many people would see increases too abruptly. “This is a sharp departure,” they wrote.

Maurstad replied that the plan had been delayed once, and that the increases would proceed Friday.

On Monday, Menendez will introduce legislation that could cut maximum annual increases to 9%, institute means-testing and add vouchers for those who cannot afford the increases.

Citizens Property Insurance Corp. president Barry Gilway said at a Wednesday board of governors meeting that the organization is considering “all ideas to reduce exposure” as policies mount by the thousands.

Gilway said Citizens is accepting policies at a rate of 5,000-6,000 per week as private market insurers withdraw coverage amid significant losses.

Citizen’s policy count is on pace exceed 760,000 by the end of the year, which could push the company’s exposure growth to more than $230 billion.

“I think it would be optimistic to consider that we are going to get any significant depopulation activity until probably the second or third quarter of next year,” Gilway said.

Created by the Florida legislature as the insurer of last resort, Citizens provides insurance to property owners unable to find coverage in the private market.

Gilway said the increase in policies has already had an impact on staffing, particularly at Citizens’ call center where calls have increased to more than 86,000 per month, up 59% from 2020.

At a Tuesday Exposure Reduction Committee meeting, Citizens officials offered proposals that would refer potential policyholders to the private market.

Any such proposals would likely have to go through the Florida legislature, which reconvenes in January 2022.

“At this point, everything is on the table as we try hard to support the development of a stronger private insurance market and stabilize the role of Citizens as the market of last resort,” said Nelson Telemaco, chairman of Citizens’ Exposure Reduction Committee.

Many homeowners, especially rookies who are new to the game, have no clue what their homeowner’s insurance policies cover. Buyers know they must have insurance, or their lender won’t provide the financing. And they should know they must keep coverage in place, or the lender could call their loans due and payable in full. (As an alternative, the lender could put a policy in place at a much higher premium, tacking the extra cost onto the owner’s monthly house payment.)

But as for knowing what’s covered? Most people don’t even read their policies. That’s understandable, considering most policies are written in legal gobbledygook that few of us can understand. But when you don’t know what’s covered and what’s not, you could be in for a big surprise when the time comes to make a claim.

Here, then, with a nod to the Insurance Information Institute and other sources, is a basic primer on insurance coverage.

A standard homeowner’s policy has four types of coverage: the structure itself, your personal belongings, liability and additional living expenses.

Structural coverage pays for repairing or rebuilding the house if it is damaged by fire, lightning, wind, hurricane or other disaster listed in the policy. The most popular policy, known as HO-3, offers the broadest coverage, protecting against 16 enumerated perils.

The personal belongings section covers your furniture, clothing and other personal items if they are stolen, or if they are destroyed by an insured disaster.

Liability coverage protects you from lawsuits for injury or damage caused to other people by you, your family members or even your pets. It also pays for the cost of defending you, as well as any court awards, up to the policy’s limit. And it covers not just your house, but you — anywhere in the world. If your house is uninhabitable because of damage from a listed peril, the insurer typically will pay for your hotel, restaurant meals and other living expenses while the place is being rebuilt. If your house is a rental, and your tenants are unable to live there during repairs, the policy may even cover “loss of use” — meaning it will pay you the rent you couldn’t receive during your tenants’ absence.

While an HO-3 policy is the most popular, others are available. An HO-1 policy sets bare-bones coverage, while an HO-2 offers slightly more (but less than an HO-3). An HO-4 policy is for people who rent single-family houses, and covers their personal belongings against all 16 perils. And an HO-6 policy is for those who own condominiums, covering their belongings and the parts of the structure they own.

As important as what’s covered by your policy is what’s not covered. Floods are not, for example, so you’ll need a separate policy for that. Sometimes, flood coverage is required to obtain and maintain financing, but even if it’s not, it’s a good idea to give it a long, hard look. Floods can occur anytime, anywhere — and not just from gigantic storms. Other typical exclusions include damage from earthquakes, war, pollution, nuclear accidents, intentional damage, normal wear and tear, construction defects, vehicles parked on the property, frozen pipes and vandalism.

Once you settle on the specific policy, you need to choose one of three levels of coverage:

-- Actual cash value: Pays to replace or repair the home and replace your possessions, less a deduction for depreciation.

-- Replacement cost: Pays the same as above but without deducting for depreciation. Note: Whereas replacement-cost policies cover the structure, they do not cover anything above the actual cash value of your possessions.

-- Guaranteed or extended replacement cost: As the highest level of protection, guaranteed coverage pays whatever it costs to rebuild the house as it was, even if it exceeds the policy’s limits. An extended policy pays for a certain percentage — usually 20% to 25% — over the limit. While this protects against sudden increases in construction costs when there’s a shortage of materials after a major, widespread disaster, it won’t pay to bring your place up to current building codes. For that, you’ll need an “ordinance or law endorsement,” which will help pay the extra freight.

Obviously, the more coverage you purchase, the higher your premium. The amount you pay also is governed by your deductible: The larger the deductible, the lower the rate. But you shouldn’t stop there. Beyond flood coverage, you’ll want to add riders, aka endorsements, to your coverage to cover any items you may have that are excluded from your standard policy. The list of excluded items is a long one: jewelry, business equipment, wine collections, luxury rugs, antiques, furs, silverware, watercrafts and fine art, to name a few.

Once you put coverage in place, it’s a good idea to perform an annual insurance checkup to make sure your property is still protected at its current value — up or down — as opposed to what it was worth when you put the policy in place. To protect against that, consider an inflation guard endorsement so that coverage is automatically increased every year.

Your annual review should also cover your riders. Maybe you no longer own that beautiful mink coat, for example, or perhaps you bought a van Gogh to hang on your living room wall.

Plagued by worsening financial issues and under pressure from credit rating agencies, Gulfstream Property and Casualty Insurance Co. entered the first months of 2021 determined to increase its capital contributions.

The Sarasota-based personal residential insurer had just come off a bleak 2020 calendar year and was struggling to maintain the minimum $10 million surplus.

Gulfstream believed it had finally found an adequate investor by early 2021. The suitor had approximately $3 billion in assets and was deep in due diligence with the Sarasota-based residential insurer when disaster struck. Severe winter storms hit the south-central region, where the company has thousands of policies in Texas and Louisiana. Gulfstream, which also operates in Florida, Alabama, Mississippi and South Carolina, was forced to demand higher required contributions. The suitor pulled out.

Insurer rating experts at Demotech advised Gulfstream executives in March that they must improve operating results if the carrier was to keep it sfinancial stability rating. By then, money had dried up.

Gulfstream was one of several Florida-based private carriers to suffer significant losses in 2020. Gulfstream reported a decrease in surplus of more than $5.2 million as of Dec. 31, 2020 compared with the same date in 2019. The surplus included a net loss of $22.6 million and a net underwriting loss of $34.9 million.

Without capital contributions of $17.1 million, the company would have been below the minimum $10 million at year’s end.

“They had to get rate increases, they had to get additional capital, and I think the reality is they were doing both,” Demotech President Joseph Petrelli told Insurance Journal. “Management had put in money. The company had filed for rate increases and received rate increases and then filed for more. They just couldn’t get enough money in fast enough.”

By May, Gulfstream had received Florida Office of Insurance Regulation approval to cancel approximately 20,311 personal residential policies. The company said it would no longer have risk on any policies outside Florida past June 1.

Even with reduced risk and a shrinking number of policies, Gulfstream couldn’t righten its finances fast enough. Demotech withdrew its “A” designation and shortly after that the OIR placed Gulfstream under administration supervision for failing to maintain the minimum surplus to pay claims.

Though administration supervision is usually confidential, the OIR determined it was in the best interest of the public, Gulfstream and its policy holders to forego that confidentiality.

The OIR notified Gulfstream on June 25 that was under administration supervision, a 90-day period during which Petrelli expects the state to be a “little bit of a matchmaker” so policies might go to another company rather than going to state-run Citizens Property Insurance.

Citizens President and CEO Barry Gilway said during a Wednesday, July 14 Board of Governors meeting that supervision will 35,000 Gulfstream policies will likely be subject to a liquidation order in the next week or so.

“We do have companies that are interested in picking up that book,” Gilway said. “The bottom line is we do believe there may be opportunities for one and maybe two companies to pick up the 35,000 policies. If they do, there is very limited impact on Citizens.”

Known as the state’s insurer of last resort, Citizens has seen a significant increase in its policies since late 2019. Company officials said policies are growing by more than 5,000 per week.

“After holding stable for a number of years at about 430,000 policies, now we’re up over 650,000, or so,” said Citizens spokesman Michael Peltier. Peltier, who declined to speak specifically on Gulfstream, said Hurricanes Erma and Michael in 2017 and 2018 have led to a series of long litigations for Florida insurers, eating into their surpluses.

“Companies have had to adapt which means in many cases shedding risk and those policies are coming to us,” he said.

Petrelli expects that the worst is over as companies have trimmed the number of policies they write and issue and strengthened their balance sheets.

Absent a Black Swan event, such as a severe hurricane or series of potent storms, Florida insurers that Demotech works with are in good shape.

“The reality is most of the companies we’ve dealt with either had their capital infusions or they’re big enough that they were okay on their own,” said Petrelli.

After Surfside disaster, some foresee ‘huge problems’ for associations 

Owners of older condominiums in Florida can expect to pay more for insurance coverage as a result of the Surfside collapse — if they can find insurance at all. The tragedy is already sparking discussions among insurance experts across the state about how they might be able to get out of paying for future collapses. Experts say that condo owners should brace for higher costs and possible changes to commercial policies that condo associations buy to cover their buildings, as well as to policies that unit owners buy to cover what happens inside their four walls.

With two-thirds of condo buildings in South Florida at least 30 years old, thousands of condo owners will likely be forced to reach deeper into their pockets, experts say — not only for higher insurance costs, but also for engineering reports and repairs that insurers are expected to start requiring. “Before this tragedy happened, condos had problems finding private insurers,” said Jan Bergemann, who heads a statewide advocacy group for condominium owners called Cyber Citizens for Justice. “Believe me, [the collapse] will just increase the problem and if insurance companies demand engineering reports, we will see huge problems for these condo associations.”

Barry Gilway, CEO and president of state-owned Citizens Property Insurance Corp., told his company’s governing board that private-market insurers will use the collapse to justify dropping coverage of older condo buildings. Condo associations will be left with no choice but to seek coverage from Citizens, the so-called “insurer of last resort,” he said. “We can expect companies to be far more stringent in their underwriting requirements,” he told the board on Wednesday. “And that will send more business our way.”

Citizens doesn’t want older condos. If Gilway has his way, those buildings won’t be insured by Citizens unless owners can prove that they aren’t at risk of collapsing. He said the company should prepare to tighten its own eligibility criteria, including requiring associations to submit structural engineering reports. What the company will need to figure out, he said, is “how aggressive do we get” in establishing criteria meant to reject buildings most likely to generate costly claims. “Can we put in underwriting criteria that are very explicit, for example, that we will not write a [building] without a full structural integrity engineering report? Will we need to require a 40-year certification in order to [cover] a residential condominium? By doing that, we can stop that business from coming in.”

Citizens will likely require approval from the Office of Insurance Regulation for any changes to eligibility criteria. In addition, the state Legislature is expected to look into possible revisions to condominium laws when committee meetings begin this fall in preparation for the 2022 session. Private-market insurers, however, have the flexibility to change provisions of commercial policies — and even cancel policies in the middle of policy terms — without prior approval from state regulators, said Charles Nyce, associate professor of risk management and insurance at Florida State University’s College of Business. Some companies might decide to exclude or limit coverage for building collapses, Nyce said.

Private-market insurers, which currently cover all but about 330 commercial condo policies that are in Citizens, could impose requirements similar to those sought by Gilway, experts said. “Gilway is correct. A lot of insurers are going to be taking a harder look at what that risk looks like,” said Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents. Insurers will likely require older buildings to submit documentation showing that they passed local inspections, Ulrich said. They’ll also insist that condo associations order structural engineering reports and send copies to them for review, he said. Biggest cost hikes likely won’t be premiums 7/18/2021 S

More frequent inspections and engineering reports will cost associations money that will be recovered from owners. Insurers will be forced to increase premiums to cover the costs of reviewing those reports. But the biggest cost increases for owners probably won’t be in the form of higher insurance premiums, said state Sen. Jeff Brandes, a Tampa-area Republican who in recent years has been heavily involved in the Florida Legislature’s insurance reform efforts. Brandes says the steepest price hikes will result from insurers’ requirements that condo associations make “substantial investments” to fix any structural defects identified in those required structural engineering reports. And “they’re not going to write [policies] unless they have a signed agreement that the work is going to be done,” he said.

Condo associations will have little choice but to make the improvements and pass the costs to owners if they want to remain insured, he said. A potential way to fund repairs While commercial condo policies that cover building structures are written by just a few state-regulated insurance companies and unregulated surplus lines carriers, the most common policies are those purchased by condo owners themselves that cover what’s inside, and not outside, a unit, including personal property, bathroom and kitchen fixtures, cabinets, countertops, plumbing, floors, carpeting and interior walls. Those condo policies, which are typically sold by many of the same state-regulated insurers that cover single-family homes, are required by law to provide at least $2,000 in coverage for special assessments levied by condo associations for losses.

The way it typically works is if a condo association’s building policy cannot fully cover the cost of a repair, the association will bill owners for the remainder of the repair cost as a special assessment. Condo owners can recoup that special assessment, up to the limit of their coverage, from their own insurers. Coverage for special assessments is meant to pay for unexpected but minor damage, such as replacing fascia after a hurricane, as well as liability claims, like a drowning in a community pool. Coverage is triggered not when the event occurs but on the date the owner gets the bill for the assessment. “Routine maintenance is not covered,” said an executive of a Florida-based insurer, whose president would not authorize him to speak for attribution. Some insurance industry insiders, the executive said, are concerned that if increased scrutiny of structural integrity triggers a tidal wave of required repairs, lawmakers could decide to require loss assessment coverage to help foot the bills.

“The industry has to look out for a stroke-of-the-pen decree that the insurer is on the hook for all loss assessments, even problems that started 30 years ago,” he said. If that happens, he expects many insurers to stop offering condo unit coverage. Chip Merlin, president of Merlin Law Group, a Tampa-based law firm specializing in property insurance litigation, said he’s concerned that insurers will try to water down or eliminate loss assessment provisions in all of their policies to prevent it from being applied to structural repairs. Waiting to learn cause of collapse Some experts interviewed for this story say it’s premature to predict how the insurance industry will react to the collapse.

Investigations into what caused it are still in the early stages, and the insurance industry is waiting for results before making major changes to coverage criteria or prices, Nyce said. “Hopefully most companies will want to find out the cause first,” he said. “This was not a normal event.” Questions yet to be answered include: Were inspectors not doing their jobs and certifying buildings as safe? If insurance companies feel Miami-Dade County was not doing its job, rates in that county may go up.

“There are lots of theories. If it’s determined there were common construction practices in the 1970s and 1980s that caused it, then yeah, we’ll probably see rates rise for older buildings.” Merlin sees the possibility of a different outcome. With property managers and association boards now prioritizing maintenance and repairs, one could argue that condo buildings are safer today than before the tragedy happened, he said. “If you are in a building and you see cracks in concrete and rebar that’s deteriorating, you’re going to be asking your board or property manager, ‘What are we doing about this?’ ” Hopefully all of the repairs will make insurers want to cover more condo buildings “and we’ll see that reflected in lower rates,” he said.