If state lawmakers agree that the company’s artificially low rates are harming Florida’s private insurance market, getting insurance from the state-owned Citizens Property Insurance Corp. could become more expensive.
Citizens wants to be the insurer of last resort, not the lowest-cost insurer.
Over the last three years, homeowners have turned to Citizens as spiraling losses forced private market companies to fold, raise rates, and stop writing new business in the state. Citizens’ policy count has increased from around 420,000 to 1.13 million since 2019, and Citizens expects it to reach 1.68 million by the end of next year.
Company executives are hoping that the Florida Legislature will consider measures that would make the company less financially appealing to customers and force them to switch to a more expensive private company during a special session on insurance issues scheduled for next week.
Among the many goals listed in the proclamation announcing the special session was the intention to enact reforms that would “facilitate the transition” of Citizens policies to the private insurance market.
Officials have long stated that raising Citizens’ costs would be the most effective way to achieve that goal.
Although no specific bills have been filed for the special session, Citizens officials acknowledged Wednesday that they have met with leaders of the state House and Senate, as well as the governor’s office, to discuss what they would like to see passed.
Citizens’ president and CEO, Barry Gilway, told the company’s Board of Governors on Wednesday that Citizens’ average premium of $3,227 is 44% lower than the $5,788 average paid by private-market customers.
“We are not a residual [last-chance] market; we compete openly with the private market.” “We don’t want to, but we have to,” Gilway explained.
“The reality is we are ridiculously competitive, and we need relief relative to overall rates,” he added later.
Citizens premiums were 36% lower than private market premiums in 2021. The spread was wider in counties north of the South Florida metro area, he said, with Pinellas and Pasco counties having more than 50% less and Broward and Miami-Dade counties having “maybe” 20% less.
“You have insureds coming to us from bankrupt insurers, and we’re saying, ‘Welcome, here’s a 30% discount.'”
Gilway advocated for a “fundamental fix” that would bring Citizens’ rates closer to what’s known in the insurance industry as “actuarial soundness” — 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.
Citizens, on the other hand, is not a typical company, and it has been offering artificially low rates since at least 2007, when then-newly elected Gov. Charlie Crist persuaded the legislature to temporarily freeze Citizens rates. Crist and the Legislature lifted the freeze in 2009, but enacted a new law prohibiting average annual rate increases of more than 10%.
Prior to the price freeze, Citizens’ rates were calculated using a formula designed to keep them higher than the 20 largest private-sector insurers.
The formula was designed to keep Citizens’ rates from becoming too appealing to homeowners and to keep the company as a last-resort insurer.
Instead, the 10% rate cap drove down Citizens’ rates because private market companies could raise rates by 20%, 30%, 40%, and more.
Citizens can keep rates artificially low because it is not required to make a profit on operations and can generate income from its $4.4 billion surplus, which was $6.8 billion before factoring in $2.4 billion in Hurricane Ian losses this fall.
In 2021, Gov. DeSantis signed legislation allowing Citizens to raise the rate cap from 10% to 1% per year for the next five years. The first increase, to 11%, went into effect on August 1, and the second, to 12%, will go into effect on January 1.
However, the Florida Office of Insurance Regulation rejected Citizens’ Board of Governors’ bid in June to raise all customers’ rates by the new maximums, claiming that their methodology for determining those increases differed from historical norms that required rate decreases for some customers where warranted.
Citizens officials indicated Wednesday’s meeting, as well as a Florida Chamber-sponsored insurance summit the day before in Orlando, that they haven’t given up trying to persuade the Legislature to enact measures that would raise the company’s rates.
“I believe Citizens will be on the table next week,” Christine Ashburn, the company’s chief of communications, legislative, and external affairs, said on Tuesday at the insurance summit.
It remains to be seen which ideas will emerge for debate during the session, and how many lawmakers will be willing to vote for ideas that would raise, rather than lower, homeowners’ insurance rates. Gilway mentioned pitching two specific reform proposals, but said he had no idea if any of them would be included in bills to be filed for the session, which begins Monday.
On Tuesday and Wednesday, citizens officials mentioned several previously raised but unimplemented ideas. At the summit, Ashburn stated that tightening eligibility thresholds would encourage investment in private-market companies. Reforms would create a large pool of eligible customers with no pending litigation or open claims on which private companies could draw and build a profitable book of business.