Citizens CEO says hurricane-insurance-for-all bill would be too expensive

The bill, sponsored by Rep. Spencer Roach, a Republican from Lee County, and Rep. Hillary Cassel, a Democrat from Broward County, would make the so-called “insurer of last resort” into the insurer of first resort for windstorm coverage.

But during a workshop held by the state House Insurance and Banking Subcommittee, Citizens CEO Tim Cerio said the bill could cause the company’s reinsurance costs to skyrocket by 645% — from $628 million to $5.6 billion if 100% of Florida properties were covered.

“We don’t even know if there’s enough capacity in the reinsurance market” to provide needed coverage, Cerio said.

Roach and Cassel argued that expanding Citizens’ ability to write wind coverage from 29 counties to the entire state will be necessary to prevent a collapse of Florida’s insurance market after a series of catastrophic storms.

The idea, they said, would be to take the premiums that insurers pocket during years without hurricanes and place them into a state-run pool where they would accrue and be available when hurricanes strike.

Insurance premiums in Florida have increased over the past three years to the point where the average homeowner pays about three times as much as owners of similar homes in the overall United States.

Insurers have provided a long list of reasons for the increases, beginning with larger-than-expected costs of settling claims from 2017’s Hurricane Irma. Subsequent years saw Hurricane Michael, which struck the Panhandle in 2018 as a Category 5, and Hurricane Ian, which struck Southwest Florida as a Category 4 storm in 2022.

Other reasons cited by insurers include high rates of litigation and increasing frequency of hail and other severe, non-hurricane storms.

Eight insurers went insolvent between 2021 and 2023, according to the Florida Insurance Guaranty Association, a state-funded organization that pays claims filed against bankrupt insurers and recovers the money by assessing healthy insurers.

Cassel said similar insolvencies follow every time Florida is hit by major hurricanes. The companies go out of business and take with them premiums collected during years without hurricanes.

Allowing premiums to accrue in a state-run pool will reduce, not increase, the amount of reinsurance that leaves Florida each year, they said. Currently 40% to 50% of every premium dollar spent by Florida property owners goes to reinsurance, Cassel said.

The saved money would be available to spend on Floridians, she said, “instead of having those profits siphoned off to either another corporate (insurance) entity or management company and then those collateral reserves are not there when the claims need to be paid out.”

Roach called Cerio’s prediction of massive reinsurance cost increases “a little overblown.”

During the current insurance crisis, the number of policies held by Citizens increased from 420,000 in 2019 to about 1.4 million last year.

Cerio said that making Citizens the wind insurance provider for all Floridians would mark “a very different change in direction” for the company, which is currently focused on reducing its policy count by encouraging rate hikes and making it easier for private companies to take over Citizens policies.

If the bill is enacted, he said, the value of properties Citizens would have to cover would increase from $618 billion to $3.2 trillion. That could increase the amount of money that Citizens would be forced to recover through assessments of nearly all insurance customers in the state by up to $65.4 billion, he said.

Rates that Citizens pays for reinsurance — coverage that all insurers buy to ensure they can pay all claims after major storms — would likely increase, Cerio said.

That’s because wind damage claims, although backed by Citizens, would be settled by private-industry companies that would sell wind coverage along with insurance for all other claims, according to the bill.

Currently, reinsurers give Citizens a discounted rate because they understand the company’s claim-paying process, Cerio said.

Reinsurers would be concerned if suddenly they were forced to analyze how 60 private companies pay claims, he said, adding that having so many companies selling Citizens coverage would make it difficult to control fraud.

Asked by Rep. Tom Fabricio, a Republican from Miami-Dade County, how the change would affect the private insurance market, Cerio said it would pull more policies currently covered by private companies into Citizens.

Roach said the concept was studied two decades ago by a former state representative who concluded it would produce an $82 billion surplus after 10 hurricane-free years.

Several insurance experts, including Citizens’ CEO and chief risk officer, concluded that the idea was viable, Roach said. But then Gov. Charlie Crist declined to advance the idea, saying he preferred a free-market approach to insurance.

And beyond the discussion during Tuesday’s workshop, there’s no indication that Roach’s and Cassel’s bill will go anywhere this year. The bill has not been scheduled for any committee votes and is unlikely to get serious consideration during the current session.

Still, Rep. Wyman Duggan, the subcommittee’s chairman, called the discussion “thought provoking” and said, “We’ll see where it leads in the future.”

But Cassel said the Legislature is forestalling an inevitable reckoning if it decides to kick the can down the road.

“In 20 years, our successors are going to be looking at the same crisis and asking why we haven’t done more,” she said.

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].

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