U.S. Senate Budget Committee announces investigation into Citizens Insurance [South Florida Sun-Sentinel]

The chairman of the Senate Budget Committee has opened an investigation into Florida’s Citizens Property Insurance Corp. and its ability to pay claims for “climate-related” disasters before seeking federal help.

A news release from U.S. Sen. Sheldon Whitehouse on Thursday, written on Senate Budget Committee letterhead, said the committee is seeking “documents and information about plans by Florida’s state-owned ‘insurer of last resort’ to address increased underwriting losses from climate-related extreme weather events and other disasters such as tropical cyclones, intense precipitation events, droughts, heatwaves, sea level rise, and wildfires.”

The probe, the release said, builds on two previous and ongoing investigations into the insurance industry’s response to climate change and the committee’s “growing concern about the economy-wide harms from widespread uninsurability.”

Citizens’ market share of multi-peril homeowner policies was approaching 20% in 2022 and had more than doubled since 2020, the release said.

Whitehouse outlined the need for the investigation in a letter addressed to Gov. Ron DeSantis, Insurance Commissioner Michael Yaworksky and Citizens CEO Tim Cerio.

The letter said the budget committee is “increasingly concerned about Florida’s uniquely large and growing exposure to climate-related property losses, Citizens’ rapidly expanding market share, and state law allowing Citizens to levy special assessments on all policyholders in the event that losses exceed its ability to pay.”

The letter quoted DeSantis in March saying that Citizens has not been solvent. “If you did have a major hurricane hit with a lot of Citizens property holders, it would not have a lot to pay out,” the governor said.

If Citizens is unable to cover its losses, the letter said, “it is entirely possible that state leaders might ask the federal government for a bailout” that would put the federal government “(and by extension all American taxpayers) at substantial risk.”

The letter says that the committee is “increasingly concerned about the economic consequences of an eventual widescale decline in property values caused by increasing exposure to climate risk and the attendant increase in insurance premiums and decrease in insurance availability.”

Effects on households — and on federal revenues and spending — could be “quite damaging and long-lasting, as we saw during and after the 2008 financial crisis,” the letter said.

Florida Gov. Ron DeSantis’ office did not immediately respond to questions about whether Citizens would be allowed to respond to Whitehouse’s call to cooperate with the investigation by producing documents and other information.

The letter requests a long list of data, including modeling and analysis of Citizens’ potential exposure to various “worst-case hurricane scenarios.”

It also seeks estimates of Citizens’ market share over the next decade, analysis of its ability to pay claims resulting from various loss scenarios, an inventory of Citizens’ current assets, its total reinsurance coverage, maximum claims it could pay out without having to levy an assessment on Florida policyholders, and copies of communications between top state officials about Citizens’ future solvency and what it would do if Citizens was unable to cover its losses.

Citizens responded to Whitehouse’s announcement by documenting recent declines in the company’s policy count.

On Wednesday, company officials announced that it has started to shed customers for the first time in years, thanks to an aggressive campaign to encourage private market carriers to assume tens of thousands of Citizens policies.

Citizens staff members said they expect 282,000 policies to be transferred away from the carrier in 2023, leaving it with 1,216,408 policies — or a 16% market share — and $551 billion in insured property value.

Citizens spokesman Michael Peltier responded to the letter by saying that “Citizens is structured so that it will always be able to protect its policyholders and pay claims.”

The company, he said, is required by Florida law to levy surcharges and assessments on its policyholders and nearly all Florida insurance customers “until any deficit is eliminated.”

But Jeff Brandes, a former Florida state senator who during his tenure repeatedly warned that Citizens was growing too large, said Thursday that Whitehouse’s concerns are valid.

Citizens was insuring $586 billion in Florida property value at the end of October with $15.6 billion to pay claims, including reserves, reinsurance, and the Florida Hurricane Catastrophe Fund, according to data from the company.

“That’s egregious,” Brandes said. “The state would never let a private insurer run this way.”

He noted that despite the recent depopulation activity, the company was still adding 30,000 to 50,000 new policies per month while charging rates as low as 50% below what the private market charges.

When Citizens was created, it was required to charge “actuarily sound” rates. That’s insurance lingo for rates set at levels that enable companies to pay for losses and turn a profit.

Charlie Crist imposed a 10% cap on annual rate increases when he was governor in the late 2000s. Although the state Legislature recently allowed that cap to increase from 10% to 15% over five years, it still hasn’t brought Citizens’ rates in line with private-market insurers and as a result, most agents are placing their customers with Citizens, Brandes said.

“It’s hard to compete with private business when you are competing against a business similar to yours that’s 50% cheaper,” he said.

Brandes suggested that eliminating the rate cap for new customers while keeping it in place for existing customers would move Citizens toward financial health while enabling the private market to be competitive.

Paul Handerhan, president of the insurance watchdog group Federal Association for Insurance Reform, said that insurers of last resort aren’t supposed to compete with the private market at subsidized rates.

“It’s not what the residual insurance market was created for and it’s not how (last-resort) companies operate across the country,” he said.

Handerhan suggested that the Legislature allow Citizens to take a close look at its book of business and raise rates of properties priced too low.

“Insuring property at a rate that doesn’t let you meet your obligations is not a good strategy,” he said.

He concurred with Brandes that a single major storm hitting a major metropolitan area like Tampa or Miami is all that separates Citizens from being “completely wiped out.”

Citizens has the authority under state law to assess its own customers up to half the cost of their premiums to make up any shortfall in claims-paying ability, Brandes noted. But that would be a hardship for most, he said.

“Let’s say they’re paying $3,000 and get assessed $1,500,” Brandes said. “Who has $1,500 lying around?”

While Citizens could levy assessments, what would happen if another large storm occurs during the same year or the next year, Handerhan asked. “Citizens would be out of cash,” he said.

Brandes said that in addition to imposing surcharges on nearly all insurance customers in Florida, Citizens would likely turn to the federal government for help, as Whitehouse says in his letter, Brandes said.

Whether the current governor will allow Citizens to provide requested information to Whitehouse and the Senate Banking Committee remains to be seen.

Whitehouse is a Democrat and the Senate is controlled by the Democratic Party.

DeSantis and a supermajority of the Legislature, which controls Citizens, are Republican.

Handerhan said it’s illogical to acknowledge increasing perils of climate change while continuing to subsidize property insurance rates.

“Citizens should be the most expensive insurance in the state, not the least,” he 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].