Citizens, the state-owned property insurer, is expected to have 1M policies by 2022. It’s looking at new tactics that could force covered owners to get private coverage.
TALLAHASSEE, Fla. – Customers of state-owned Citizens Property Insurance Corp. will be forced to spend more to insure their homes if a new state law limits – or eliminates – their ability to just say no to private companies taking over their policies.
Citizens is looking for ways to reduce its policy count, which has increased from 420,000 in 2019 and is expected to reach 765,000 by the end of the year – and more than 1 million by 2022.
Three proposed changes to state law that Citizens plans to seek next year would throttle policyholders’ ability to reject bids by private-market insurers seeking to cherry-pick their policies out of Citizens.
“We want to get these people out of our insurance company. We want them to be out in the free market,” said Nelson Telemaco, a member of the company’s Board of Governors and chairman of its Exposure Reduction Committee, which discussed the proposals last Tuesday.
Under one proposal, Citizens policyholders would be allowed to remain with the “insurer of last resort” only if premiums charged by any private company seeking to take over their policy in the middle of their term exceed Citizens’ by more than 20%. That would be a dramatic and costly change for many CItizens’ policyholders, who have the right under a 2007 law to reject takeover by a private-market insurer for any reason they choose.
A related proposal would make customers ineligible for Citizens if they reject a private company’s offer to sell them a new policy at renewal time unless the offer exceeds Citizens’ price by more than 20%. Currently, policyholders can reject those offers if the policy cost proposed by the private market insurer exceeds what they pay Citizens by any amount. They are required to accept offers equal to or below what Citizens charges.
Currently, property owners can qualify for Citizens insurance if no private market insurer is willing to cover them, or if the only offers they get exceed Citizens’ price by 20% or more.
A third proposal that Citizens plans to pitch to Florida lawmakers before the 2022 legislative session begins in January would eliminate policyholders’ ability to reject takeout offers altogether.
Failure by the Legislature to change the rules will encourage policyholders to keep their cheaper Citizens policies, while providing no incentive for private companies to take over Citizens’ policies, company officials said Tuesday.
But the “incentive” that Citizens wants to offer private market companies is the up-to-20% rate increase that its policyholders would immediately have to pay their new insurer if the company gets its way.
Tens of thousands of homeowners, particularly in south and central Florida, have been forced into Citizens as private-market companies have stopped insuring older homes, homes with roofs more than five or 10 years old, homes in areas with high claims rates, and homes with other characteristics that insurers consider high-risk.
Many homeowners became eligible for Citizens in recent years after their previous insurers raised their rates by thousands of dollars, canceled their policies, or declined to renew them.
Citizens, despite providing less coverage and exposing policyholders to steep assessments if the company is unable to pay all claims after a catastrophe, is comparatively cheaper than most private market policies thanks to caps on annual rate increases and on premiums offered to new customers.
But Citizens’ governing board worries that allowing the company to oversee too many policies will increase the prospects that its $6.4 billion surplus will be wiped out after a catastrophic storm season. If that happens, insurance customers throughout the state would be subjected to assessments to help Citizens pay all of its claims.
Over the past decade, Citizens has pursued strategies intended to reduce its policy count while encouraging growth of private-market insurance companies in the state. One of the key strategies, called depopulation, encourages private companies to select Citizens policies for transfer to their book of business, often in the middle of customers’ policy terms.
After Citizens reached a peak of 1.5 million policies in 2012, Citizens aggressively promoted depopulation and saw private insurers remove about 800,000 policies over the next several years. That appetite has slowed significantly as high claims and litigation rates, plus more frequent hurricanes and other destructive weather, has eaten away insurers’ profit margins.
Another reason companies lost interest in taking Citizens policies is customers’ right to reject being removed for any reason they choose, said Barry Gilway, Citizens president and CEO.
About 80% of customers selected for takeout have rejected being taken out, many because of concerns that takeout companies were relatively new and untested.
Another strategy allows private-market companies to participate in a so-called clearinghouse that reviews soon-to-renew Citizens policies to determine possible fits. Under laws governing the company’s clearinghouse, policyholders remain eligible for Citizens if private-market offers exceed what they would pay to renew with Citizens.
In the second quarter of 2021, just 330 Citizens’ customers received offers below Citizens’ price, while 1,208 received offers above their Citizens premium – making them eligible to remain with Citizens.
Christine Ashburn, Citizens’ chief of communications, legislative and external affairs, said she would begin speaking with lawmakers gathered in Tallahassee for committee meetings this week in hopes of finding one willing to submit the company’s proposals in a bill.
© 2021 South Florida Sun-Sentinel. Distributed by Tribune Content Agency, LLC.
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