Florida Market Study Will Evaluate Exposures, Strategies for Citizens Property Insurance

Citizens Property Insurance Corp., Florida’s insurer of last resort, has moved forward with an independent study that will evaluate the insurer’s potential exposures from the state’s troubled property insurance market.

The Citizens’ Board of Governors voted at its last meeting to approve a proposal by Florida State University for an Exposure Reduction Study at a cost of $265,266 over an 8-month period that began in April. A final report of the study is to be completed by December 2020.

According to Citizens’ executive summary of the study, FSU’s proposed analysis will:

• Identify opportunities for Citizens to further reduce its exposure while continuing to fulfill its mission as a residual market insurer.
• Identify inhibitors to Citizens’ further depopulation and identify strategies to expand Citizens’ depopulation.
• Identify mechanisms to eliminate or reduce the re-population of risks by Citizens tracking the risks specifically depopulated.

Citizens President, CEO and Executive Director Barry Gilway told the board the study was more important than ever as many Florida domestic insurers face financial issues that are leading to a hardening of the state’s property market and making it difficult for Floridians to obtain affordable property insurance.

“The study … will go well beyond looking at Citizens just as a standalone entity and determine what changes could occur within Citizens and what issues there are within Citizens,” Gilway said. “It would also extend to the overall marketplace and determine if there are changes within the overall Florida market that could improve the competitive nature of the market.”

Gilway said Citizens has worked with FSU on the details of the study since it first discussed the idea at the December 2019 Board of Governors meeting. Gilway said then that Citizens would 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 after a request from Florida State Senator Jeff Brandes.

Gilway told the board that the study would look at 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 in December.

FSU has conducted previous studies of Citizens, specifically between 2011 to 2015. Those studies, conducted with the James Madison Institute, the Insurance Information Institute and the National Association of Insurance Commissioners, focused on ways to reduce Citizens exposure from its peak in 2011 of 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 has reduced its policyholder count down to approximately 443,000 policies with about $110 billion in exposure. However, the state’s insurance market has significantly tightened in the last several years thanks to mounting losses for domestic insurers and that could lead to a re-population for the insurer. Concern over the stability of the Florida market worsened at the beginning of this year when Demotech, a ratings agency that evaluates more than 40 Florida domestic carriers, threatened downgrades to as many as 18 companies.

Demotech eventually affirmed most of the Florida companies but not before several actions were taken, including one company run-off and several insurer consolidations/mergers.

Gilway said if Demotech had downgraded 12 to 18 companies, as it initially warned, it would have been “a major market disaster for the industry.”

Even though companies avoided downgrades, Gilway told the board that Florida domestic insurers ended 2019 with a net underwriting loss of $684 million and negative net income of $340 million, which is more than double the net income loss in the prior two years. As a result, 80% of company rate filings between June and December of last year requested increases, with 55% of those being double digit increase requests. Gilway said in addition, insurers are looking to implement more restrictive form filings and tighter underwriting criteria.

Florida has a “very difficult and changing market from a property standpoint,” Gilway said, and he expects Citizens will be increasing exposure “fairly significantly.”

“It’s more important than ever that we understand the drivers behind that increase,” he said.

Once the exposure reduction study results come back, Gilway said Citizens can determine what recommendations to make to the Florida Legislature for the 2021 session “to improve the overall competitiveness of the Florida market.”

The majority of the Citizens Board of Governors voted in favor of moving ahead with the study, though there was one dissent from Governor Carlos Lopez-Cantera who disagreed it was necessary to perform the study at this time, saying he thought they should wait and see the impact the coronavirus outbreak has on the various markets.

“You have a legislative session that is over a year away, you have a market that could shift and change … before then,” he said. “I think this is premature and this is money that could be spent on something else.”