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FSU study: For Citizens to shed policies, the market needs to be more stable

Citizens Property Insurance is growing. To shrink, experts say there needs to be a place for policies to go.
Citizens Property Insurance is growing. To shrink, experts say there needs to be a place for policies to go. One of the issues is lingering claims from Hurricane Irma in 2017. Pictured is damage from the storm in Big Pine Key. | [EVE EDELHEIT   |   Times (2017)]
Citizens Property Insurance is growing. To shrink, experts say there needs to be a place for policies to go. One of the issues is lingering claims from Hurricane Irma in 2017. Pictured is damage from the storm in Big Pine Key. | [EVE EDELHEIT | Times (2017)] [ EVE EDELHEIT | Tampa Bay Times ]
Published Nov. 20, 2020

State-run Citizens Property Insurance Co. has grown rapidly since January, expanding to its largest pool of policies in recent years.

To get those numbers down and keep them down, several issues in the private market must be stabilized first, a Florida State University study obtained by the Tampa Bay Times said. It then needs to raise premiums on many of its policies to more accurately reflect risk of property damage.

“I think this study is going to help steer the debate on property insurance issues,” Michael Carlson, CEO of the Personal Insurance Federation of Florida. “Certainly it will help educate new lawmakers in Tallahassee.”

This spring, Citizens hired Florida State University to identify ways the state-run insurer of last resort can lessen its overall exposure to risk, operate more effectively and encourage the private market to absorb more of its policies.

It was spurred by a letter last year from Sen. Jeff Brandes, R-St. Petersburg, urging Citizens president Barry Gilway to find a way to return Citizens to its position as a residual carrier.

Related: Citizens Property Insurance looks for ways to reduce its policy count

The final report, dated Nov. 12, outlines a number of challenges Citizens faces in doing so.

As of September, the most recent figures available, the insurer had 511,005 policies, a 15 percent jump from 443,228 policies in January. While high, its policy count is roughly a third of its peak in 2011 at 1.4 million policies — roughly 23 percent of the state’s property insurance market.

The recent growth comes from the market’s instability as other insurers face lingering claims from the 2017 hurricane season when Hurricane Irma hit, rising reinsurance costs and heightened litigation around claims. Many insurers, too, are not renewing policies in some areas of the state because of their rising risk.

This is compounded by the relatively low amount of capital many Florida insurers have compared to the “catastrophic risk the state faces,” according to the study.

These factors, the study said, “are indications that the residential property insurance market stability may be wavering and could lead to future growth at Citizens.”

Citizens spokesman Michael Peltier said it was too early to comment on the study.


“Depopulating” Citizens policies begins with making the market more attractive to investment and new insurers, the researchers said.

One of Florida’s weaknesses is the lack of diversity in its insurers. Many of the state’s largest insurers focus their business primarily on Florida.

“The lack of diversity of these insurers in combination with their significant market share could lead to serious market disruptions if a major loss were to occur,” the report said.

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Bringing in new companies and money, researchers said, will help spread the risk out.

Another component is reducing Florida’s significant risk for catastrophe from storms. To help that, the study suggested updating building codes so new structures are more resilient, as well as requiring that builders ensure that a private property insurer is willing to insure the homes and businesses they’re proposing before they are allowed to begin construction.

Another major component is dealing with the rising litigation.

Citizens’ faces the same pressure from litigation that insurers have complained of for years: A rise in water damage claims unrelated to storms land in court, bringing additional legal fees on top of any claims that would be paid out. The report said that these claims make up the majority of Citizens’ closed claims every year and have risen steadily since 2013.

The issue is largely concentrated in South Florida between Broward, Palm Beach and Miami-Dade counties, though the study noted that legislation intended to curb these lawsuits is expected to affect these numbers going forward.

The university study suggested that Citizens take a proactive approach to these losses by requiring homeowners to be subject to inspections every three to five years, pursuing alternative claims settling processes such as dispute resolution and making early claims offers to head off litigation. Ensuring customers work with certified contractors can also help reduce this.

Statewide efforts, the study said, are also needed. Florida might consider creating a fraud database with the Department of Financial Services’ investigative arm to help identify trends and key players.


Once these are accomplished, the study said, the market will be able to handle taking policies out from Citizens.

But instead of the approach companies have traditionally taken — selecting individual policies — citizens would offer portfolios companies could take out that are bundled based on risk, and the companies would be required to keep them for at least three years.

Under the university’s proposal, policyholders wouldn’t be able to get coverage with Citizens unless their only choice for coverage is premiums that are at least 15 percent higher than those offered by Citizens for new and renewed policies.

One of the likely controversial portions of the proposal is eliminating gradual rate increases on Citizens’ premiums, which restricts how quickly they can increase, so they reflect the actual risk they are insuring.

Researchers also recommended creating a state program to address general affordability around property insurance, as well as educating consumers on costs.

The researchers are scheduled to present their findings to Citizens’ board on Dec. 16.


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