Citizens Insurance grows amid ‘unhealthy’ market

Citizens to the rescue — but for how long?

Homeowners are again starting to flock to the state-backed property insurer of last resort as the private market becomes economically stressed, the president of Citizens Property Insurance Corp. warned Wednesday.

Citizens President and CEO Barry Gilway pointed to an “unhealthy” private market that is leading to increased policies at Citizens, with the problems due primarily to litigation and rises in costs of reinsurance, which insurance companies buy to help cover losses.

“The growth is becoming extraordinary,” Gilway said during an online meeting of the Citizens Board of Governors. “And you can gloss over these numbers, but the impact they have on the overall operations is significant.”

After peaking near 1.5 million policies in 2012, Citizens has spent years trying to shed policies and move them into the private market. A healthy number for Citizens is considered around 420,000 policies — roughly the amount it had in 2019.

But Gilway said Citizens likely will be above 540,000 policies by the end of this year, moving from 4% of the market to 5%. In Southeast Florida, Citizens will account for about 17% of the market.

With a number of major companies scaling back coverage in South Florida or deciding they won’t cover homes older than 10 years, the forecast has Citizens growing to 625,000 policies next year, or 6% of the market, Gilway said.

Citizens is back above 500,000 policies for the first time since 2015. Citizens stood at 499,056 policies as of Aug. 31, and Gilway said the company has been netting 2,500 to 3,000 new policies a week.

“This is exacerbated because nobody’s leaving (Citizens), because there’s no capacity in the overall marketplace,” Gilway said.

Citizens’ rate proposals for 2021 are expected before a December Board of Governors meeting.

Citizens is also expected by the December meeting to receive a study from Florida State University’s Florida Catastrophic Storm Risk Management Center that is looking at steps to further reduce exposure and actions the Legislature can take to slow the movement of policies from private insurers to Citizens.

“We know that a healthy private market reduces Citizens’ size, and in an unhealthy private market we’re going to grow,” Gilway said. “Obviously, this is the reason that we requested, and the board approved, the FSU study. But we’ve also got to look around and consider recommendations from board members, from legislators and others that might have some ideas in terms of how we might reduce the overall size and scope of Citizens over time.”

While Citizens has a 10% cap on annual rate increases, excluding coverage changes and surcharges, private companies have been seeking rate increases of 12% to 30%.

The Florida Office of Insurance Regulation held a public hearing Tuesday on a proposal by First Community Insurance Co. to raise rates by an average of 24.5%.

Last year, the Citizens board approved a statewide average increase of 8.2% for personal lines policyholders — homeowners, condominium owners and renters.

Gilway didn’t target private-market rate increases as a primary driver for policies moving into Citizens. However, he said Citizens is now the most competitive company in rate comparisons 85% of the time in prime markets.

Citizens had been optimistic that changes made during the 2019 Legislative Session, such as curbing the practice known as “assignment of benefits,” were taking hold.

Insurers have long argued that abuses of assignment of benefits were driving up rates, primarily because of litigation over residential water-damage claims.

Gilway said the so-called AOB changes have helped as the industry faces other pressures, but litigation trends continue to grow.

And while South Florida had been heavily responsible for increased claims, mostly involving water damage, Gilway said Central Florida has become a recent hotspot for claims.