"We take asking for a rate increase very seriously," Citizens makes case for potential double-digit increases in insurance rates

Carrying a homeowners policy by Citizens Property Insurance Corporation in Florida these days costs about 44% less than a private market policy. But that could change this year.

Last Thursday, officials with Citizens, considered the state's insurer of last resort, spelled out to the Florida Office of Insurance Regulation during a 2½-hour public rate hearing why a proposed rate increase – ranging from 7.7% to 24.2%, or about a 13.1% increase on average across the board – is necessary at this time.

"We take asking for a rate increase very seriously," said Tim Cerio, President and CEO of Citizens. "(For) homeowners' insurance consumers, it's a very difficult time right now."

A CNN Business report from September showed that 39% of all Citizens policies are in Miami-Dade County, and 36% are in Monroe County, which includes the Florida Keys.

According to its county-by-county estimates, Citizens shows that with the proposed rate hike in Miami-Dade County for HO-3 (multi-peril home) policies, the average price would climb 11.9%, from an average premium of $4,579 to $5,125. The average HO-6 (multi-peril condo) policy would rise 11.1%, from an average of $3,807 to $4,229.

Cerio said Citizens' rates are "artificially low" compared to the private market, on average 44% lower. But, to survive, Citizens need to return to a smaller role in the market.

"Citizens must return to truly being that insurer of last resort for our state," Cerio said. "We must charge actuarially (risk assessment) sound rates and … not be competitive with the private market."

While no one wants to pay higher premiums, "these changes come with responsibilities and expectations," Cerio said.

More than a dozen rate changes are proposed for Citizens' various policies, ranging from a rate increase of 7.7% to a high of 24.2% (for mobile homes in coastal areas). The public can air their grievances through 5 p.m. on June 22 by emailing ratehearings@floir.com with the subject line "Citizens Property Insurance Corporation."

If those rate changes are approved, they will take effect on Nov. 1 for new and renewed policies.

Even if the Florida Office of Insurance Regulation should approve the rate increases (likely in July), Brian Donovan, the company's vice president, said Citizens would still need an additional $1.3 billion in premiums to be actuarially sound.

"We recommend the maximum increase by law, where appropriate," he said.

Several charts showed how wind, based on various hurricane models, is the driving force among risk indicators for homes, mobile homes, condos, and commercial properties, followed by "all others" and sinkhole damage.

Citizens' proposed average increase of 13.1% involves "personal lines" policies, including coverage for single-family homes, condominium units, renters, and mobile homes.

State law caps annual rate increases for Citizens customers whose homes are their primary residences and have multi-peril policies. The cap is 12% this year and 13% in 2024.

In one example, Citizens officials recommended a 12.6% average increase for "all primary properties" with HO-3 multiple-peril policies, which cover the dwelling, belongings and personal liability should a home's structure get damaged from natural disasters or other perils, such as theft or fire.

Over the past three years, the private market has increased its HO-3 rates by an average of 39%, while Citizens' rates went up 15% in comparison.

Citizens also propose an average rate increase of 10.8% for HO-6 (condo) properties.

For Citizens' coastal accounts, rates would climb by 13.7% for HO-3 policies and by an average of 24.8% for HO-6 policies. For mobile home policies, rates for the coastal account would jump by an average of 24.2% under the proposed increase.

Based on the latest legislation, flood insurance will become a requirement for Citizens policyholders.

Depopulating Citizens policyholders is one way the company could begin regaining its financial composure.

"The greater its exposure, the potential for implementation of emergency assessments exists," Cerio said, "which would place a financial burden on Florida taxpayers, even if not Citizens customers."

Overall rate increases of 2%, 2%, and 6% were approved for Citizens in the past three years, resulting in about a 15% cumulative change, while the private market saw rate increases of 14%, 10%, and 11%, for a cumulative 39% change during that same 2020-2022 span.

State Bill 2-A, signed into law by Gov. Ron DeSantis, "will remedy the underlying cause of market problems, but not immediately," said Cerio, pointing to eliminating Assignment of Benefits and one-way attorney fees.

"Excess litigation has been the primary cause of the poor health of the Florida property insurance market," Donovan said.

In 2021, Florida comprised 9% of all property claims nationwide but over 81% of residential property insurance litigation suits, many of which were considered sketchy at best.

Another critical topic from Thursday's hearing was how to differentiate primary and non-primary residences (non-primary being living there less than nine months a year).

The December legislation (SB 2-A) allows annual increases of up to 50% for non-primary residences. That could lead to at least some second-home owners seeing significant rate increases.

One official said proof of a homestead exemption and a Florida driver's license would be part of the proof to show that the property is the primary residence.

Two spokesmen for the group FIRM (Fair Insurance Rate Board Members) in Monroe County vehemently disagreed with the flood insurance requirement as an add-on. They urged regulators to reject increases in their county.

Mel Montagne, president of the group, said Citizens had received a "gross profit" from Monroe County over the years because it has taken in more in premiums than it has paid out in claims.

Joe Walsh, a group board member, said the lack of insurance company competition in the Keys means they have few alternatives if Citizens hikes its rates.

The state-created insurance company, established more than 20 years ago, has been limited by statute on how much it can raise premiums each year, thus attracting more and more property owners year over year.

Cerio said Citizens policies have soared from 610,000 to 1.2 million over two years through April 30, and he expects 1.7 million policies (and $654 billion in insured value) on this current trajectory by year's end.

The result is a 33% decrease in the company's reserves. Much of that emanated from last year's storms that battered the state. But, exposure increased 192%, he said.

The Florida Legislature in 2022 raised the glide path, allowing average rates to increase by as much as 15% by 2026. That is still well below recent increases requested by several primary market carriers.

To see if you qualify for a Citizens policy, click here.

Resources are available from The Department of Financial Services for people looking to find home insurance coverage or get help with their existing coverage. The hotline is 1-877-MY-FL-CFO (693-5236).