Thousands Of Citizens Insurance Customers To Get Offer From New Insurer

If so, it's likely because you were dropped by your private-market insurer or couldn't find coverage from any other carrier.

Soon, you might receive an offer from a newly formed insurer -- the first since 2013 to enter Florida's troubled property insurance market.

VYRD Insurance Company, based in St. Petersburg, will be selecting up to 42,045 Citizens customers from every region of the state to form its initial "book of business." Takeout offers will be sent to selected customers by the end of the year, a VYRD spokesman said Tuesday.

By the second half of 2022, the company plans to sell policies on the open market, the spokesman said.

The new company, created with $46 million in investment capital, will be led by David Howard, a former executive of Tampa-based Lighthouse Property Insurance and Boca Raton-based Edison Insurance.

VYRD is a joint venture between SiriusPoint Ltd., a Bermuda based specialty insurer and reinsurer, and Bolttech, which provides technology services to more than 150 carriers, including 19 in Florida.

VYRD received its Certificate of Authority from the Florida Office of Insurance Regulation on Nov. 29, a day before the office authorized the Citizens takeout proposal. Selected policies will be transferred on Feb. 22 or a later date approved by the office and Citizens, according to a consent order authorizing the takeouts.

Opportunity and reforms

The new company will select its first customers as Citizens continues to experience a burst of unwanted growth. Citizens had more than 726,000 policies at the end of October -- an increase of more than 300,000 after declining to 428,000 in 2018. Citizens' policy count is expected to hit 1 million by 2022.

Citizens is growing because nearly all Florida-based insurers have been posting operating losses over the past several years, due to increasing costs from claims litigation and higher-than-expected losses stemming from 2017 s Hurricane Irma.

To stem the flow of red ink, private-market insurers have been declining to renew what they consider their riskiest policies and sharply limiting new business to recently built homes or homes with roofs less than 10 years old.

VYRD decided to enter the market because of recently enacted reforms intended to reduce costs into the future, Florida Insurance Commissioner David Altmaier said at the Florida Chamber's annual Insurance Summit last week.

VYRD's spokesman, who asked not to be named, confirmed that the reforms were a major reason the company was created to serve Florida.

"Strengthening insurance market in Florida has been a key priority for state officials, and we're proud to be at the forefront of what we hope is a new era of competition and choice for Floridians," the spokesman said by email.

One of the reforms is intended to dissuade plaintiffs attorneys from filing lawsuits by restricting legal fees they can earn from initiating and settling litigation.

Another reform reduces the amount of time customers have to file claims for hurricane damage, from three years to two years.

But the reforms did not take effect until July 1 and do not apply to claims or lawsuits filed before that date. Existing companies won't see significant reductions in costs until claims and lawsuits predating July 1 are resolved. That could take up to two years, industry officials say.

A clean slate, and customers' rights

VYRD, meanwhile, enters the market without the burden of unresolved claims or lawsuits. The July 1 reforms will apply to any future claims filed against it.

"New entrants can benefit from having a competitive advantage over existing property insurers because they don't have the legacy litigation costs that still need to be adjudicated through the courts," said Paul Handerhan, president of the consumer-focused Federal Association for Insurance Reform.

VYRD's spokesman declined to identify its selection criteria for the takeout offers. Historically, takeout companies cherry-pick Citizens' least-risky properties -- newer homes owned by people who have good consumer credit scores and have never filed an insurance claim.

It's also unclear how many Citizens customers will be willing to accept the new company's offer. Under state laws governing Citizens' depopulation program, private-market companies choose which Citizens policies they are willing to take out, but must notify those customers of their right to refuse the takeout offer, for any reason, within 30 days before or 30 days after the transfer date.

Citizens has proposed reforms that would prohibit takeout targets from opting out unless the takeout target's proposed premium is more than 20% above what they pay Citizens.

The depopulation program, created a year after Citizens was formed in 2002, helped reduce Citizens' policy count from 1.5 million in 2012 to 428,000 in 2018. But that was when private-market carriers were able to offer competitive rates along with more coverage. In 2020, just 5,892 Citizens customers were taken out through the program, and four out of five takeout targets typically reject private carriers' offers, Citizens officials said.

That right to refuse being taken out of Citizens has quelled private-market insurers' enthusiasm for participating in Citizens' depopulation program in recent years, said Christine Ashburn, Citizens' chief of communications, legislative and external affairs, at last week's insurance summit.

Growth of Citizens is considered bad for the state. It reduces the likelihood that the company can pay all claims out of its own reserves after a large-scale catastrophe. If the company's reserves can't cover all losses, Citizens customers can be subjected to special assessments of up to 45% of their premiums. If still more money is needed, Citizens can levy additional assessments against all property insurance customers in the state.

Even when they cost less, Citizens policies aren't considered a good choice for homeowners. Coverage for personal liability is limited to $100,000. Animal liability coverage is not available, nor is coverage for water that backs up from a sewer, drain or sump pump into the home. Mold coverage is capped at $10,000. And homes valued at $700,000 or more are ineligible for coverage.

State laws governing Citizens takeouts, meanwhile, require takeout companies to offer comparable coverage for a minimum of three years after the transfer date.

Citizens spokesman Michael Peltier called news about the new company "encouraging," adding, "Over the past several months, Citizens has been the only choice for many homeowners. Many of these are newer homes that are very insurable and may be able to obtain better coverage from a private company without the threat of high assessments."

Foreign backers

Recent stories on the website Poltico noted that a Chinese-based subsidiary of China Minsheng Investment Corp. holds a 35% ownership stake in SiriusPoint Ltd.

State approval of an insurer with Chinese investment follows high-profile criticism of China's influence by Florida Republicans.

In June, Gov. Ron DeSantis signed bills intended to counter foreign influence from countries considered hostile to the U.S., including China, and crack down on theft of intellectual property and trade secrets.

But VYRD's spokesman, who asked not to be named, said Chinese money is not unusual in the global insurance industry. "Many of the top reinsurers operating in the Florida market have investments or other ties to companies based in China," the spokesman said.

State Sen. Jeff Brandes, a Pinellas County-based Republican who has been a vocal advocate for reforms that would reduce insurers' losses, said on Monday that he isn't bothered by reports that VYRD is partially backed by capital from China.

"I don't know why we would care where the money came from," he said, adding, "I don't know why anyone would want to invest in this insurance market."

VYRD is the first home insurance company created in Florida since SafePoint Insurance Company was formed in 2013 that is not a policyholder-owned "reciprocal" or affiliate of an existing company, according to a spokeswoman for the Office of Insurance Regulation.

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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