Surcharge risks drop sharply for Citizens Insurance customers next year [South Florida Sun-Sentinel]

Customers of state-owned Citizens Property Insurance Corp. came dangerously close to being forced to pay policyholder surcharges during the hurricane season that ended Nov. 30.

But those prospects will be reduced considerably next year, after the “insurer of last resort” combines its three main customer accounts into one.

At its Board of Governors meeting on Wednesday, Citizens unveiled projections showing that policyholders won’t face surcharges next year unless the state is hit with a 1-in-95-year storm or series of storms that requires the company to pay out $16.7 billion in claims.

During the just-completed hurricane season, customers in Citizens’ personal lines account — composed of residential single-family homes, condos and mobile homes — would have had to pay a policyholder surcharge if the company paid out just $420 million in claims.

The policyholder surcharge would have kicked in if the state had been hit by a 1-in-4-year storm.

Imposed on Citizens customers only, the policyholder surcharge would have raised up to $770 million before a separate emergency assessment would have been charged to nearly all insurance customers in Florida to raise an additional $729 million.

Only then would Citizens have spent the nearly $2 billion required to access reinsurance funding from the Florida Hurricane Catastrophe Fund and private reinsurance sources.

Next year will be different because the company is combining its three accounts: personal lines — the biggest with more than 1 million policies — plus coastal lines and commercial lines, into a single account.

That matters because the company’s total surplus of more than $5 billion will no longer be divided among the three accounts.

Hurricane Ian in 2022 ate up $1.17 billion of the company’s personal lines account surplus. That, combined with claims payments made after smaller storms last year, left the personal lines account with $420 million in surplus, Citizens officials told board members last summer.

At the time, officials warned of policyholder surcharges “if the wind does blow.”

Florida dodged a bullet last hurricane season, as Hurricane Idalia, the only storm of consequence, hit the sparsely populated Big Bend area, causing 2,989 claims and estimated losses of $133 million — well below the $420 million surplus, according to Citizens data. And no other hurricane threatened Florida after Idalia.

With the three accounts combined into one, customers will face a single policyholder surcharge of up to 15% of their premium, rather than the three separate surcharges of 15% per account, or 45% of their premium, they would have faced if surpluses in all three accounts were depleted.

The change also eliminates one of two assessments faced by nearly all insurance customers if Citizens still needs additional money after spending what’s raised by the policyholder surcharge.

Previously, insurance customers in Florida faced the potential of paying a “regular assessment” of up to 2% of their home, auto, specialty and surplus lines policies. If that’s not enough, they could have been charged “emergency assessments” of up to 30% of their premium costs — 10% for each of Citizens’ three accounts.

As of Jan. 1, the “regular assessment” goes away and the emergency assessment will be capped at 10%. That means that Citizens customers face a one-time surcharge of up to 15% of their Citizens premiums and emergency assessments of up to 10% of their combined insurance premiums, which could be levied over multiple years.

Customers insured by private market insurers would only face the recurring 10% emergency assessment.

Combining the accounts allows Citizens to draw $5.6 billion from its surplus, $5.6 billion from the Florida Hurricane Catastrophe Fund, and $5.5 billion from private-market reinsurance to pay claims before imposing the policyholder surcharge, which would raise another $1.07 billion. The company would have to spend more than $18 billion before imposing the emergency assessment on nearly all policyholders.

Citizens CEO Tim Cerio spoke of Citizens’ responsibility to make up any shortfall by assessing its own customers and then the rest of the state’s policyholders in responding to U.S. Sen. Sheldon Whitehouse’s announcement last week that Citizens was the subject of an investigation by the Senate Budget Committee.

In a letter to top Florida leaders, Whitehouse said he was concerned that the increased incidence of climate-related events exposed Citizens to losses it did not have the ability to cover. If the company couldn’t cover its losses, Whitehouse said, “it’s entirely possible that state leaders might ask the federal government for a bailout.”

Cerio on Wednesday said he didn’t think Whitehouse understood that state law required Citizens to pay all its claims by assessing Florida insurance customers if its surplus and reinsurance runs out. “At no time in Citizens’ history has it sought a federal bailout to pay its hurricane-loss claims, including after the catastrophic 2004 and 2005 hurricane seasons,” Cerio said.

Whitehouse’s letter, however, did acknowledge that Florida had assessment ability but said a bailout request could come from “the likelihood that it would be both politically and economically unfeasible for Citizens to attempt to recoup tens of billions of dollars in losses from policyholders across Florida.”

Cerio said that Citizens’ staff was working to determine how to respond to Whitehouse’s request for information, including detailed projections and analyses of how the company plans to pay if a destructive storm hits a major population area.

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 rhurtibise@sunsentinel.com.

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