In the last two decades, efforts have been made to shrink Citizens Property Insurance Corporation, which is backed by Florida taxpayers. However, Citizens is growing rapidly again as lawsuits drive up premiums in the private insurance market.
Now, legislation seeks to once again curb the number of policies held by Florida’s so-called “insurer of last resort.”
“Right now, we are in an unsustainable situation,” says Christian Camara, a senior fellow at the James Madison Institute in Tallahassee, which is billed as a nonprofit, free market think tank. Camara recently authored a report that looks at the rise in Florida’s insurance costs.
“The more policies and exposure that Citizens has, the more likely it is that a major hurricane will one day come and make Citizens go broke, and then the state of Florida - our taxpayers - will have to bail it out,” Camara says. “Number two: the smaller Citizens is, the harder it is to get into Citizens, the easier it is for private companies to come into the state.”
Camara says Florida has some quirky litigation laws that can make it beneficial for attorneys to take insurance claims to court. His report found that only 8 percent of the insurance payouts since 2013 in Florida went to policyholders. The other 92 percent went to attorneys and legal expenses. He says these lawsuits are driving up costs for private insurers.
Now, a bill that would make a series of changes to Citizens Property Insurance could ultimately help boost the private homeowner’s insurance market.
Customers would not be able to renew their policy with Citizens if a private insurer offers a premium that’s within 20 percent of what Citizens would charge them, and the bill would allow surplus-lines insurers to take over policies from Citizens. Those companies have fewer regulatory hurdles than standard insurers.
The bill, filed by Senator Jeff Brandes, R-St. Petersburg, also targets policyholders whose homes are not their primary residence.
“One-third of the policies within Citizens are not primary residents or homesteaded properties,” Brandes told the Senate Banking and Insurance Committee, which approved his bill. “This ensures that the benefits of you and I subsidizing policyholders goes to people that actually live primarily in Florida, and not out-of-state tourists or out-of-state visitors who would buy their second home and then get a discounted policy at Citizens.”
Camara says Citizens hasn’t been a real insurer of last resort for about 15 years, when then-Gov. Charlie Crist pushed through legislation that essentially made Citizens a public option among property insurers. The law froze Citizens’ rates for a while.
“Later on, the legislature passed a reform to increase - we call it the glide path - increase its rates over time,” Camara says. “We didn’t experience a hurricane here in Florida for 10 years, and rates started coming down… It was a perfect storm of good stuff that happened for Florida for about 10 years. So, then a lot of policies migrated from Citizens back into the private market.”
Now, there's a widening gap between the rates Citizens charges and the rates in the private market.
“Having a mechanism in place whereby Citizens policyholders are no longer eligible for Citizens is very important because investors looking to write policies in the state of Florida…that gives them a predictability,” Camara says. “That gives them the ability to know, okay, we know for a fact that these 13,000 policies, we write a policy within 20 percent of Citizens rates, they will come to us.”
The News Service of Florida reports Citizens ended last year with more than 750-thousand policies. That’s an increase of more than 200-thousand policies from a year earlier.
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