Surplus line carries enter Florida’s insurance market
Surplus line carriers are insurance companies that provide property insurance that other insurers don’t cover in a particular market.
HB 1503, which went into effect July 1, allows surplus lines carriers to take out policies from the state’s Citizens Property Insurance Corp that are not primary residences or homesteaded properties, like vacation homes.
Mark Friedlander, spokesman for Insurance Information Institute, said, the main difference between surplus lines and traditional residential insurers comes down to cost.
“Surplus line carriers don't necessarily have the same rules to follow when it comes to pricing because they can set their prices based on their risk modeling without getting approval from a state regulator,” he said.
Friedlander said that means surplus line rates could run 50% to 100% higher than a standard home insurer.
“But at the same time, there is a state surplus lines office that oversees regulation,” he said.
About 75,000 properties in Florida will be eligible under HB 1503, according to Friedlander.
Depopulation at Citizens
HB 1503 will aid in Citizen’s ongoing depopulation efforts to reduce the number of policies, which ballooned to more than 1.4 million policies in 2023.
State leaders have been working to lower the number of policies at Citizens through the depopulation process because of the financial risk if Florida gets hit by a major hurricane, like Hurricane Ian.
“Now, surplus line carriers will be able to participate just in this small subset of secondary or vacation homes,” said Friedlander.
Surplus lines must abide by the same rules that other carriers in Florida follow to participate in Citizens depopulation.
“That means their offer must be within 20% of the cost of Citizens,” he said. “If it's not within 20%, then the Citizens policy holder could remain with Citizens. They do not have to accept the takeout offer.”
Citizens Board of Governors recently backed a proposal that will lead to an average 13.5% to 14.2% rate increase for the most common type of Citizens policy.
Friedlander said the new law will not impact the rate filing that’s being presented to the Florida Office of Insurance Regulation, but it will play a role in how successful depopulation is.
“It's really important for Citizens rates to be closer to not only the private Florida standard market, but the surplus lines market to close the gaps because there are large gaps in costs,” he said. “If citizens get its approval, the surplus line carriers that participate will be able to make offers that are much more in line with that 20% threshold.”
Friedlander said depopulation is essential to the stability of Florida’s insurance market.
As of June 24, Citizens had more than 1.2 million policies, but it still has a long way to go to reach a goal of under 500,000 customers.
“This is why rate changes are important to continue to spur the momentum of depopulation, because Citizens still has to cut several 100,000 policies to get to a manageable risk level,” said Friedlander.
He said it may be several years until Citizens reaches that goal.
“They have a long way to go,” he said. “And if we continue to see such a large gap in costs between Citizens and the private market, it's going to take much longer.”
Citizens executives indicate they expect to be under one million policies later this year, according to Friedlander.
How is Florida’s insurance market doing in 2024?
As depopulation continues at Citizens and more private insurers enter the market in Florida, Friedlander said Florida’s insurance market is in a much more stable position than it has been in many years.
According to the Insurance Information Institute,average premium insurance increases are below 2% across Florida.
“That's an incredible change from past years, where we saw a fairly large double digit increases on average,” said Friedlander. “In fact, according to our analysis at the Insurance Information Institute, Florida's average rate increases this year are at the lowest level in the entire country.”
In addition, ongoing depopulation shows the private market now has more capacity to take on risk.
“The private market is healthier,” said Friedlander. “Because in the past, the private market could not participate in depopulation, because they didn't want to take on risk.”
Friedlander adds that eight new insurers have been approved this year to write business, and another eight have filed for rate decreases or flat rates, meaning no rate changes.
“So big changes in the market and all the results of the legislative reformsthat were passed back in 2022 to address legal system abuse and assignment of benefits claim fraud,” he said. We knew it would take roughly 18 to 24 months for the market to start to turn around. And we're seeing that already this year that there are significant positive changes in the Florida marketplace.”
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