Should you drop your home insurer and go to state-owned Citizens?

State-owned Citizens Property Insurance Corp. is becoming the go-to insurer for Florida homeowners besieged by high prices and wishy-washy private market property insurers.

One day your insurance company wants you and offers you a great deal to sign up. The next day it’s jacking up those rates, or declining to renew your policy. Who needs that?

Citizens, owned by the state of Florida, can seem like a better choice. With rate hikes capped by state law at 10% annually, thousands of homeowners are making the switch. In fact, Citizens has grown rapidly since the third quarter of 2019, when it had 423,000 policies, to mid-June, when it tallied 626,607.

Citizens had the third-lowest annual premium among 27 companies on a price comparison app featured on the website of the Florida Office of Insurance Regulation. In South Florida, agents say Citizens is by far the cheapest choice available to homeowners.

Many consumers have no choice. In sections of Broward and Miami-Dade counties, virtually no private market insurers are willing to cover homes they believe will result in claims that cost more than the premiums they’ll produce. For those homeowners, it’s Citizens or nothing.

“It depends on how price-sensitive the consumer is,” said Paul Handerhan, vice president of the consumer-focused Federal Association for Insurance Reform, based in Fort Lauderdale. “If they’re on a fixed income and can’t afford private coverage, then they’ll have to go with Citizens.”

Other homeowners, hit by numerous price hikes over the past several years, might be turning to Citizens because they see an opportunity to save money. It’s just insurance, after all, which people buy with the hope of never actually having to use it.

But the fact that it’s cheaper doesn’t necessarily make Citizens a better option, insurance experts say.

“Don’t think you’re comparing apples to apples” Handerhan said. “You’re not. You could end up in a worse financial position if you have Citizens and something bad happens.”

They advise homeowners to think carefully about potential scenarios that could leave them with less or no coverage from Citizens, or with no flexibility to customize their policies to fit their particular needs. They also point to a worst-case scenario that could leave Citizens customers on the hook to pay hefty special assessments if a massive storm should leave the company unable to pay all of its claims.

So if private market insurance is available to you but you’re still thinking about switching, here are a few things you consider first:

Citizens doesn’t really want you

Citizens doesn’t want to insure homes that would be more appropriately covered in the private market. The lawmakers that created the option intended for it to be available for properties that no insurer can cover at an affordable price — older homes in hurricane-prone coastal regions. They don’t want to cover houses in the Orlando area, or even west of Interstate 95 in South Florida. So they wrote all sorts of poison pills into the laws governing Citizens’ operation to make sure Citizens doesn’t become too enticing.

As more customers discover Citizens, lawmakers make those pills more sour, as they did during the most recent legislative session as Citizens started to grow again. Among them: That 10% cap on annual average rate increase will increase by 1 percentage point each year until the annual cap reaches 15%.

Another: Currently homeowners are eligible for Citizens if all competing private market offers are at least 15% higher than what Citizens charges. Starting July 1, though, those competing offers will have to be at least 20% higher.

Also, Citizens doesn’t insure homes valued at $700,000 or more in most Florida counties, and doesn’t insure homes valued at $1 million or more in Miami-Dade or Monroe counties.

Personal liability coverage is limited

Citizens caps coverage at values below what private insurers are willing to offer, and for some risks, doesn’t offer coverage at all.

For example, at Citizens, personal liability coverage is capped at $100,000. This is coverage that would kick in if someone like a friend, neighbor or relative slips and falls on your property and breaks a limb or worse.

Many common scenarios could trigger someone to file a claim against your policy: If your tile floor is wet and your visitor doesn’t realize it. Or a throw rug buckles under their feet. A delivery worker could slip on an algae-covered sidewalk leading up to your front door on a rainy day. A lawn maintenance worker could be injured by a falling tree limb while working in your backyard.

The possibilities are endless, but if you have Citizens insurance, you’ll be covered only for the injured person’s first $100,000 in medical care and lost wages. If their costs exceed that amount, they might sue you personally for the remainder. Private market insurance policies typically offer $300,000 in liability coverage and give you the option to purchase more coverage.

Animal coverage isn’t offered

Those personal liability coverages offered by private market insurers will pay victims who get bit by your dog on your property or even on walks around your neighborhood. The same goes for cat bites or scratches, bird pecks, or freak squirrel attacks. Citizens offers no coverage for animal accidents.

Mold coverage is capped at $10,000

Common in Florida, mold can grow silently inside walls for months or years if you have a unseen plumbing leak, water around your foundation, a leaking roof, or poor ventilation. Eventually the mold can spread through your drywall until the point of eventually rendering your home unhealthy or uninhabitable. The cost to replace mold-infused walls can increase rapidly once workers start tearing them down and discover the extent of the damage.

Citizens caps mold coverage at $10,000, while private market insurers allow you to buy much more. That could be critical if you want to avoid a huge unexpected cost in case the unthinkable occurs.

Water backup excluded

While no homeowners insurance policy covers flooding that occurs from torrential rain or an overfilled tributary or body of water, many insurance companies will offer the option to cover damage caused by water backup from municipal sewers or failure of sump pumps, which are used to prevent flooding of homes in flood-prone areas. Citizens offers no such option.

Water damage coverage capped at $10,000

Citizens limits coverage of water damage caused by faulty plumbing systems, water heaters, appliances, or fire suppression systems to $10,000 unless you agree to allow repairs by contractors that belong to Citizens’ managed repair program. While other companies followed Citizens’ lead by creating their own managed repair programs a few years ago, many other companies did not.

Also, Citizens will perform emergency cleanup of water damage for free but limits payouts to $3,000 if the policyholder chooses the cleanup company.

While Citizens created the cap to reduce overbilling by contractors it did not control, its managed repair contractors are typically instructed to make repairs that return the property to its pre-loss condition and nothing more.

That can be a problem if the homeowner wants to take the opportunity to upgrade damaged materials, Handerhan said.

“If the original kitchen counter material is linoleum and the homeowner would like to upgrade to marble, they have the ability to negotiate with a contractor they choose,” he said. “It becomes complicated if they have no ability to shop for their own contractor. Their negotiation ability becomes a lot less.”

Sorry about your carport and pool enclosure

The outdoor structures most likely to be mangled in hurricanes or tornadoes — carports, pool enclosures, aluminum screen rooms or anything covered by aluminum, fiberglass, plastic. vinyl, fabric or screening — aren’t covered.

You’ll pay more if Citizens can’t pay

One of the biggest disadvantages of buying a Citizens policy is the potential of being billed if Citizens can’t pay all of its customers’ claims after a major disaster. True, the company currently is sitting on a $6.4 billion surplus. But that could quickly disappear if a powerful hurricane hits a major metro area like South Florida. If that happens, all Citizens customers would face assessments of up to 48% of their annual premiums to make up the shortfall. And that’s just the first of several special assessments Citizens customers would have to pay until the company made all of its customers whole.

Price is the only advantage

Currently, Citizens’ lower prices is about the only argument for choosing the so-called “insurer of last resort,” agents say.

Dulce Suarez-Resnick, vice president of Miami-based agency Acentria Insurance, produced a sample quote for comparable coverage for a hypothetical house in Central Broward with $337,000 in dwelling coverage and $168,500 for contents, plus a 2% hurricane deductible. Quotes from two private market insurers came in at $5,528 and $5,465 while Citizens’ quote was $4,953. Neither private-market policy came in at least 15% higher, the minimum required to qualify a homeowner for Citizens. Even if they were 15% higher, the savings wouldn’t justify a switch to a policy with fewer benefits, she said.

About the only good alternative involving Citizens is if a homeowner can pair a wind-only (hurricane) policy from Citizens with a policy from a private market carrier that covers all of the other risks, Suarez-Resnick said. “Otherwise, the customer should talk to their agent and make changes to their current policy to help reduce their premium,” she said.

Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents, says customers should weigh the savings they could get from Citizens with the potential higher out-of-pocket costs they might face after a loss.

“Even if it’s solely about price, there is a cost — and that’s basically the lack of coverage,” he said. “The private market is simply a better option — if they can find coverage there.”

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