Roller Coaster Ride for Fla. ‘Insurer of Last Resort’

Fla. wants to minimize the number of policies in state-operated Citizens Property Ins., but the number has skyrocketed and plunged over its two-decade existence.

TALLAHASSEE, Fla. – Barry Gilway, president and CEO of Citizens Property Insurance Corp., said Wednesday the state-backed insurer has been a “roller coaster ride” for the past two decades.

Right now, it is continuing to pick up speed.

Citizens last week reached 1.055 million policies – more than double the number two years ago – as private insurers drop customers to try to curb financial losses. Meanwhile, the industry continues to grapple with underlying problems, including costs of critical reinsurance and large amounts of claims-related litigation.

Gilway briefed the Citizens Board of Governors during a meeting Wednesday and said private property insurers are projected to have $1 billion in losses this year. Five insurers have been declared insolvent and placed into receivership since February, with tens of thousands of customers of those companies turning to Citizens for coverage.

“If the (financial) numbers remain in the red, and companies aren’t put in a position where they are making a reasonable rate of return, you’re not going to have a stable market,” Gilway said.

A key issue for the market is reinsurance, which provides backup coverage for carriers. It is particularly important in Florida, which depends heavily on Florida-based insurers rather than larger national companies.

Gilway said 40% to 50% of policyholders’ premiums typically go to reinsurance costs, and Florida carriers are expected to continue facing a tight reinsurance market.

A commentary released last week by the AM Best ratings agency pointed to reinsurers seeing losses in Florida, “despite moderate hurricane seasons, further suggesting that current prices are not adequate to cover the claims inflation and fraud in the market. Consequently, reinsurers have been pulling back from the Florida property market or significantly raising prices.”

“Pricing will continue to impact business plans and companies’ ability to use reinsurance structures with adequate limits to protect against severe storms,” the ratings agency said. “AM Best expects reinsurers to remain selective in the risks they reinsure, placing further burdens on the Florida homeowners market, which has seen four property insurers, along with a Louisiana-based insurer that wrote policies in Florida, declared insolvent since late February.”

Florida lawmakers during a May special session approved spending $2 billion in tax dollars to provide another “layer” of reinsurance to insurers that otherwise might not be able to buy it in the private market. But that was a stopgap move to help insurers, many of which needed to have reinsurance contracts in place in June.

Lawmakers also took steps to try to curb litigation costs, but Gilway and many other industry officials argue that more needs to be done to address lawsuits and attorney fees. The issue, however, is always controversial, as groups such as plaintiffs’ attorneys contend that lawsuits help hold insurers accountable for properly paying claims.

“For the third year in a row, the private industry really is going to show a $1 billion loss, with no storms to speak of,” Gilway said. “This is driven by litigation.”

Citizens was created as an insurer of last resort and has seen wild swings in its numbers of policies during the past two decades. After Florida was hammered by a barrage of hurricanes in 2004 and 2005, Citizens’ policy count topped 1 million and remained above that mark until early 2014, according to data on the insurer’s website. But the policy count dropped below 500,000 in 2016 and remained under that level for more than four years.

In September 2020, Citizens hit 511,055 policies and steadily increased to 1,055,366 policies as of Friday, with thousands of customers a week flowing in. Gilway said Citizens insures about 13% of the market and is expected to be at 15% by the end of the year.

In certain areas of the state, however, it is a far-bigger player. For example, it has 39% of the residential market share in Miami-Dade County and 30% in Broward County, Gilway said.

State leaders have long sought to hold down the number of policies in Citizens, in part because policyholders throughout the state could face additional costs – known as “assessments” – if Citizens runs deficits after a major hurricane or multiple hurricanes. Citizens policyholders would be hit hardest by assessments, but other insurance policyholders could also face additional costs if deficits are large enough.

“The entire state’s on the hook,” Citizens board member M. Scott Thomas said during Wednesday’s meeting.

© 2022 The News Service of Florida. All rights reserved. News Service Assignment Manager Tom Urban contributed to this report.