Florida Lawmakers Contemplate the Future of Citizens

With four months to go before Florida’s legislative session, lawmakers are already considering the future of the state’s largest homeowners’ insurer. However, there are few easy answers in sight.

Citizens Property and Casualty Insurance Corp. Chief Financial Officer Sharon Binnun painted a picture of an insurer that continues to dominate the market. The insurer now covers 1.4 million state residents, representing more than 20 percent of Florida’s market.

“We are growing by a 1,000 policies a day, sometimes even more,” said Binnun at a Senate committee hearing.

Binnun said the majority of that growth is coming in the insurer’s personal lines account, which now represents 946,000 homeowners. By comparison, just two years ago, there were 607,000 policyholders in that account. The insurer’s coastal account currently has around 440,000 policyholders, with the remaining policies in the commercial account.

She said the reasons for that growth include that the insurer’s rates remain competitive or lower than the private market, many agents do not have another market, and Citizens’ underwriting is less stringent than that of many private companies.

That could change, she said, but not without some significant action by lawmakers and regulators. “You don’t have to recreate the wheel,” she said. “But it is difficult to make difficult choices.”

Senator Don Gaetz (R-Destin) said that the insurer is undermining the entire market given its current regulatory scheme. He said this represents a significant burden on Florida residents, many of whom are not even aware of the possible financial repercussions.

“When is it time to go back to being an insurer of last resort as opposed to being a malignant force that sucks up a 1,000 unsuspecting customers a day,” he questioned.

Binnun did say there are some reforms that could help stem the tide of policies flowing into Citizens. Namely, a bill considered by lawmakers earlier this year that, among other things, would have allowed the insurer to increase its rates beyond the current 10 percent annual cap.

That bill, however, proved to be a political non-starter and the bill’s sponsor indicated he would likely not introduce it next year.

“We have a legislative duty to the citizens of Florida to pass that bill,” said Senator Alan Hays (R-Deland). “But at the same time unless there is a significant appetite among my colleagues, I’m not going to beat my head against the wall.”

Florida’s property market has undergone a significant change in the last half dozen years. For example, in 2004, national companies represented 28 percent of the state’s market and their Florida only “pup” companies, 35 percent. Now, those national companies only represent 19 percent of the market and the pup companies 16 percent. The state is largely dependent upon Citizens and Florida domestic insurers that now represent 44 percent of the market.

Senator Mike Fasano (R-New Port Richey), who recently led the fight against Citizens proposed triple-digit increase in sinkhole rates, questioned why private companies have not returned to those sinkhole-prone areas even though an overwhelming number of residents have opted not to buy the coverage.

Binnun said there were several issues when it comes to private companies re-entering the market in those sinkhole prone areas. While being optimistic about the sinkhole provisions in this year’s property bill, she said that many companies might see Citizens as a test case to see how well those reforms actually work.

She added that the almost annual attempts by the legislature to reform the market also have an effect. “If you guarantee private companies they don’t have to write sinkhole coverage, they ask ‘for how long, and will that change next year.'”

One thing about Citizens size is that it does give it more capacity to pay claims in the event of a hurricane. The insurer has a total surplus of $5.7 billion, that along with $6.6 billion in coverage from the Florida Hurricane Catastrophe Fund, private reinsurance, and pre-event bonding gives it a total claims paying capacity of $16.7 billion.

In the event Citizens exhausts those monies, it could also levy a variety of assessments on Citizens’ policyholders and statewide on all lines of property and casualty insurance with the exception of workers’ compensation and medical malpractice.

Binnun said that given the insurer’s resources, it could withstand several storms before it needed to access funds from elsewhere.

“We are so big now it would take a lot of losses to even have to access the Cat Fund,” she said.