Florida ‘Insurer Of Last Resort’ Requests Rate Hike, 1M Policies Expected

Citizens Property Insurance Corp., the state-run "insurer of last resort," is proposing an across-the-board rate hike of nearly 11%, the highest increase allowed by law.

The request comes as Florida's private property insurance market sinks deeper into turmoil, insurance industry analysts said, driven in part by roof-replacement fraud and widespread litigation.

"The home insurance market in Florida is in crisis," said Mark Friedlander of the Insurance Information Institute. "In fact, the private insurance marketplace now is on a trajectory for collapse."

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The alarming appraisal comes even as Florida has emerged — relatively speaking — unscathed by recent hurricane seasons. The storms that hit the state, though devastating, have mostly made landfall in the Panhandle, a region of Florida with comparatively less coastal development.

Nonetheless, premiums across the board could rise between 30% and 40%, according to an analysis by the Insurance Information Institute.

The bulk of Citizens policies are in South Florida

More than half of Citizens' policies are in Palm Beach, Broward and Miami-Dade counties, where Citizens' average premium is 25% to 30% cheaper than that of the average private insurer, a difference of almost $2,000. In all but two Florida counties, Citizens' premiums are between 6% and 56% less expensive than the average premium of competitors.

"It was never intended by the Legislature that Citizens openly and aggressively compete with the private market insurance, but that is exactly what we're doing today," said Citizens CEO Barry Gilway during a rate hearing Thursday.

Citizens has nearly 800,000 policies and is on track to surpass 1 million by the end of the year. The average number of new policies each month in 2020 was 15,000, Gilway said. Last year, that figure was 32,000 policies per month.

"We are literally netting over 5,500 new customers per week. Not month, but per week," he said.

That fast-paced growth could spell trouble for the state-run insurer if a major hurricane were to hit. If Citizens is unable to pay out claims, the state could levy a surcharge on all homeowners.

"Every homeowner could be forced to bail out Citizens. There's too much risk in their portfolio right now," Friedlander said.

Because Citizens is restricted in how much it can raise its rates, a policy set in place since 2007, the insurer has more appealing rates than the private market.

"You're incentivizing people to go to Citizens," said Paul Handerhan, president of the Fort Lauderdale-based Federal Association for Insurance Reform. "You're turning them into the 'insurer of preference.'"

Gilway told regulators that companies must keep up with costs by raising premiums, otherwise they stop writing policies or become insolvent. Two private insurers, St. Johns Insurance and Avatar Property & Casualty Insurance, have been placed in state receivership so far this year.

Insurers could be headed for trouble, more customers may head to Citizens

More insurers could be headed down that path if their financial health doesn't let them buy reinsurance, essentially backup insurance for insurers, which must be done by June 1, Friedlander said.

Although the last major storm to face Florida was Hurricane Michael in 2018, door-to-door roof replacement schemes over the past few years have played a major role in the insurance crisis.

How it works: roof contractors will offer repairs or replacements to homeowners purportedly to be covered by their property insurer, explained Friedlander. The contractors say they will handle everything by having the homeowner sign a "direction to pay" agreement in which the insurance company directly pays the contractor. If the insurance company says the claim is not legitimate because the damage was not caused by a storm, the contractor will take the company to court, Friedlander said.

While the repair or replacement is free to the homeowner, everyone ends up paying down the line through higher premiums, he said.

"Policyholders are suffering because of these issues," Friedlander said.

More than 100,000 property insurance lawsuits filed in 2021

More than 27,000 property-insurance lawsuits were filed in 2013, but that number ballooned to almost 100,000 last year.

Florida makes up 8% of all homeowners insurance claims in the U.S., but 79% of all litigation associated with these claims as of 2020, David Altmaier, commissioner for the Florida Office of Insurance Regulation, told the Florida Cabinet on Tuesday.

Lawmakers passed a bill last year in part that sought to address the roofing scheme, but it was blocked by claims that it violated First Amendment rights.

Still, the impacts of the bill on limiting litigation are "very encouraging," but it will take time for the changes to impact consumers' premiums, Altmaier said. No bills on property insurance reform passed this session.

"Despite market conditions, there is an appetite to conduct business in Florida," Altmaier said. "I think we just need to create a positive framework for them to provide a good service to our consumers."

Advocates say the state Legislature should hold a special session to address the crisis. Following the Cabinet meeting where Altmaier presented, Gov. Ron DeSantis called a special session for congressional districts.

"This market is devolving very quickly," Handerhan said. "This is not something you can punt to the summer or November or next year. This is going to have major economic implications for the state of Florida."

The Florida Office of insurance Regulation is accepting public comments on Citizens' proposed rate increase until 5 p.m. April 14. Comments can be sent to [email protected] with the subject line "Citizens Property Insurance Corp."

Hannah Morse covers consumer issues for The Palm Beach Post. Drop a line at [email protected], call 561-820-4833 or follow her on Twitter @mannahhorse.