Florida’s last resort insurer, Citizens Property Insurance Corp., has become the first way out insurer as thousands of new policies are added every week and the homeowner insurance market continues on its downward spiral.
“The reality is that the Florida market is closing,” said Barry Gilway, President and CEO of Citizens, at a hearing before the Florida Office of Insurance Regulation earlier this week.
Gilway painted a terrible picture of the Florida domestic market for state regulators at the March 15 hearing, noting that five years of ongoing losses from excessive litigation, contractor regulations, major disasters, and the rising cost of reinsurance resulted in a decrease in insurance capacity and increased costs have led to consumers. According to Gilway, Florida airlines’ net underwriting losses are projected to reach $ 1.6 billion in 2020, with loss of income approaching $ 840 million.
“Companies that are in the market have not been profitable, have not been profitable, and frankly some of them have to pay high returns just to get the capital to continue writing the level of business they are writing today.” ” he said.
Florida insurers are taking significant steps to reduce their risk in areas with high litigation rates or high reinsurance costs, he said. The result is that four Florida companies are now closed for new business. At least 12 companies have strict underwriting restrictions, such as: B. New business / renewal restrictions based on location, age of home, age of roof. required minimum coverage limits A and policy cancellations.
In addition to the coverage restrictions, the airlines offset their losses by increasing rates. The Florida Office of Insurance Regulation approved 105 rate changes last year, 90 of which were for rate increases, 55 of which were for rate increases greater than 10%.
Rating agency Demotech, which rates 66% of the Florida market, also requires the companies they rate to limit their fonts geographically and the types of homes they write in order to maintain their FSR rating.
“They are doing this essentially to improve the overall profitability of these companies and to ensure that when they take out insurance, the insured will have sufficient financial resources to cover the expected amount of damage,” he said. “There are a lot of restrictions in the market.”
Gilway told regulators that citizens are growing 5,000 new policies per week and are expected to hit 700,000 policies by the end of the year as airlines continue to raise tariffs and reduce capacity.
Citizens’ growth rate is further exacerbated by the competitiveness of their rates, Gilway said, noting that homeowner policies are 91% of the time below the average private market price.
“Capacity in the market has shrunk to such an extent that, unfortunately, citizens are no longer becoming a last resort market, but in many cases the first resort market,” he said, adding that this is never the intent of any remaining market mechanism .
There is concern that citizens could revert to their 2011 insurance status, where all Florida policyholders were at $ 11.6 billion valuation risk in the event of a 1-in-100-year event. Gilway said at the time the insurer had written 23% of the Florida market. The top priority is protecting the company’s surplus so it can pay claims and prevent all Floridians from getting stuck paying appraisals.
“As we grow, the potential for valuation grows,” said Gilway.
Citizens also have their own share of litigation. Gilway told regulators that 800 lawsuits were filed against the insurer in February and 78% of the claims stem from non-weather water losses. While the reform of the allocation of benefits passed two years ago halved the AOB litigation, legal disputes are still a major driver of tariff needs.
The Citizens Board of Governors approved tariff recommendations for 2021 in January calling for a statewide average increase of 7.2% for private line policyholders – homeowners, condominium owners, mobile home owners, apartments and renters. Homeowner policy would increase by an average of 6.1%. Condominium owners would see an average increase of 9.4%; and rental rates would rise by an average of 4%. The proposed increase in commercial lines is 9.5%.
Citizens are legally obliged to recommend actuarially impeccable tariffs and to adhere to a legislative glide path that limits the increase in individual tariffs to 10%. The insurer’s unrestricted tariff information is 25.9% for homeowners and 85.6% for commercial lines.
The proposed tariff recommendations came after the Citizens Board postponed action on a tariff list calling for an average increase in personal line coverage of 3.7%, including a 2.2% increase in homeowner coverage. The board directed citizens’ actuaries to work with OIR to address the growing inequality between citizen quotas and those collected by private insurance companies in many areas of the state.
Citizens are also seeking approval from the OIR to charge new policyholders actuarially sound rates rather than allowing them to join the insurer with limited premiums that existing citizen policyholders receive, as is currently the case. The exception would be in Monroe County, where rates would be capped at 20% as citizens are essentially the only option for insurers. If approved by OIR, the recommendation would increase new business rates by an average of 21%, according to the citizens earlier.
OIR will accept public comments on the proposed rates until March 26th. If approved, the 2021 rates will go into effect for policies renewed after August 1.
Florida real estate market trends
Are you interested in the market?
Receive automatic notifications on this matter.