Citizens to Evaluate Policyholder Count as Florida Market Conditions Tighten

Florida’s insurer of last resort Citizens Property Insurance Corporation will make shrinking its policyholder count a priority next year, despite potential headwinds that may come from Florida domestic carriers raising rates and restricting coverage.

Prompted by a request from Florida State Senator Jeff Brandes, the company announced at its December Board of Governors meeting that it will again seek input from independent evaluators to determine if there are exposure reduction or depopulation opportunities that can be identified for Citizens to further reduce its overall exposure and financial impact on the state.

“Senator Brandes is right. We should continue to look at ways to improve for our policyholders and stakeholders,” said Citizens Chairman Bo Rivard. “We agree the timing is right and look forward to seeing where it leads us.”

One significant area that Citizens President, CEO and Executive Director Barry Gilway told the board will be explored is how growing losses in the state’s domestic insurance market may impact Citizens’ policy count going forward.

“The proposed study is broad enough in scope to look at the overall Florida marketplace and understand what implications exist for Citizens given any changes in the nature of the profitability of the Florida domestic companies,” he said.

Gilway told the board that the insurer will reach out to Florida State University, which has worked on previous studies. From 2011 to 2015, Citizens was the subject of studies by outside groups including FSU, the James Madison Institute, the Insurance Information Institute and the National Association of Insurance Commissioners. The studies focused on ways to reduce Citizens exposure from its peak in 2011 when Citizens covered 1.5 million policies – 23 percent of the Florida market – with exposure that topped $512 billion. In the event of a 1-in-100-year storm, Floridians were on the hook for $11.6 billion in assessments.

Since then, Citizens said it has eliminated the risk of assessment in a 1-in-100-year storm and reduced its policy count through depopulation efforts, the Florida private market and legislative reforms to reduce unnecessary litigation and assignment of benefits abuse.

Citizens policy count has since leveled off and remained relatively stable in 2019, hovering above 420,000 until November, when Citizens added roughly 23,000 policyholders from Florida Specialty Insurance Company, which was placed in receivership by state regulators in October. As of Dec. 6, 2019, Citizens policy count stood at 444,000.

“We still believe it is appropriate to examine what might be necessary to get Citizens’ exposure to an even lower level,” said Gilway.

The scope of the study will include many factors, including identifying opportunities for Citizens to further reduce its exposure while still operating as residual market insurer; identify inhibitors to Citizens’ further depopulation and identify strategies to expand depopulation; and identify mechanizes to eliminate or reduce the re-population of risk by Citizens depopulation of that risk.

The study will look at market hindrances to reducing Citizens policyholder count, which could include the stability of Florida domestic insurers.

Gilway noted third quarter underwriting losses of $378 million for Florida insurers, which represent 79% of the Florida market, and a negative net income of $137 million. He said Florida domestic insurers are the ones most likely to participate in any current and future Citizens’ Exposure Reduction Programs.

“The market impact [of losses] is a continuation of increased rates – rates [increases] are being filed consistently on a monthly basis ranging from 3% to the 14.9% allowed for automatic approval by OIR,” he said. “These rates are absolutely necessary to overall stability to the marketplace.”

Gilway said companies are also accelerating their policy language filings to address non-wind water claims.

The result of these market changes will make Citizens a more competitive insurer in the overall Florida marketplace as Citizens cannot statutorily keep pace with the same level of rate increases as the private market, he noted. Citizens is required by state law to submit a slate of actuarially sound rates to OIR annually for approval while complying with a legislative glide path that caps rate increases at 10 percent, excluding coverage changes and surcharges. Last year Citizens submitted an overall 8.2% rate increase that it later amended to 2.3% after the AOB reform law was passed.

“Citizens is operating in a difficult market environment today. Virtually all companies continue to be impacted by excessive litigation that is clearly resulting in major financial issues in the market and more recently by increased reinsurance pricing,” Gilway said.

One area that does appear to be improving, he noted, is the AOB issue thanks to the reforms passed by Florida lawmakers this year. However, the overall industry has continued to see the same type of activity Citizens has experienced, which is “negative results in the personal lines account driven primarily both by litigation and the water claims,” he said.

Citizens managed to remain flat in terms of policy count and premium this year, which Gilway indicated was surprising considering the market conditions.

“Every year we really expect Citizens to grow, given the overall market – but even with the financial issues surfacing, the market is showing a lot of resiliency,” he said.

He said Citizens expected to pick up more than the 21,000 Florida Specialty policies it acquired when the company was liquidated but the private market was ready and able to take 80% of that business.

“Despite all the trends we are seeing, the private market is responding pretty aggressively to companies dropping market share in certain areas or where rates are increasing,” Gilway said.

Still, Citizens is aware and monitoring the future headwinds. Board of Governor Marc Dunbar cautioned that there are tough times ahead for Florida policyholders, and he said Citizens needs to be prepared to respond to changing market conditions.

“Florida domestic companies have lost about $145 million on average over the last 3 years,” he said. “We are going to see an increase in rates from domestic carriers – the facts are there. Citizens will soon be a very competitive market for Floridians and its tough to change that and it takes time to change that. If we are trying to keep up with other carriers and be financially responsible and not have the negative net income losses, we need to start thinking about our rates.”