First, a sincere thank you to the Sun Sentinel Editorial Board and Orlando Sentinel columnist Scott Maxwell for again bringing attention to the challenges facing the Florida property insurance market.
This issue impacts millions of Floridians who rely on the private property insurance industry, and in many cases Citizens Property Insurance Corporationto protect what is often their biggest investment.
While I completely agree with the premise that rising insurance premiums are incredibly painful, the remedies proposed by the Sun Sentinel would unfortunately place even greater financial risk upon Florida property insurance consumers and dilute the gains made by recent legislative reforms.
It is critical to remember that Citizens was not created as a program, such as Medicaid, to provide assistance solely to low-income families and the economically disadvantaged.
Instead, Florida law requires that Citizens “provide insurance for residential and commercial property, for applicants who are entitled, but, in good faith, are unable to procure insurance through the voluntary market.” The test to qualify is not based on income, but simply upon the inability to obtain insurance through the private market.
Typically, private insurers will not write policies in a particular area (or even in the state) if they consider the risk too great to earn even a small profit. Perhaps it is because a home is older, or has an older roof, or is located near the coast? This is where Citizens can and should come in to help.
As Florida’s “insurer of last resort,” Citizens are required by law to charge rates that are actuarially sound (ie, premiums are sufficient to pay losses and related costs) and noncompetitive with the private market. Instead of a last resort, Citizens is now the largest, and typically the cheapest insurer in Florida, accounting for about 16% of the total property insurance market.
This has happened because of legislation passed more than a decade ago that froze Citizens rates for a time, and then capped rate increases. These rate caps, commonly known as the “glide path,” mean our rates are now actuarily unsound and artificially low (Citizens rates are at least 35% below market in many places). These artificially low rates thwart competition and are hampering the recovery of Florida’s insurance market.
Moreover, Citizens’ artificially low rates are fundamentally unfair to the 84% of Florida homeowners who are not insured by Citizens — individuals who for the most part are paying higher, actuarially sound rates and have absorbed more frequent rate increases over the last several years and now face the risk of a Citizens assessment if there is a major hurricane.
Citizens has adopted strategies to minimize this risk, but we owe it to the people of Florida to continue to strive to become actuarily sound and noncompetitive with the private market.
For these reasons, capping Citizens’ rates and/or pumping in taxpayer dollars to transform Citizens into a state-funded insurer would only increase the disparity that already exists between Citizens customers and Floridians in the private market — a disparity that is not equitable and has no need-based or rational economic basis.
There is good news. We have seen evidence that the reforms have begun to strengthen the private property insurance market: Existing national insurers are willing to expand business in Florida, new insurance companies are being formed to do business in Florida, and international reinsurers (the insurance companies for insurance companies ) are willing to invest more resources in Florida.
All of these factors will lead to a stronger market, more stable rates and less frequent rate increases. I sincerely believe rates will come down for Floridians, but the timing is incredibly difficult to forecast.
Most Citizens policyholders, however, will not see their premiums go down because, again, Citizens rates are already artificially low.
As Florida’s property insurance market continues to improve, we expect private companies to continue to seek Citizens policies through Citizens’ depopulation program. We encourage all Citizens policyholders to please pay attention to the documents we send via traditional mail, email, and through other means.
Policyholders who receive offers from private companies but remain eligible for Citizens must affirmatively elect to stay. Insurance agents also have a duty to be actively engaged on behalf of their clients. And at Citizens, we must do our best to communicate clearly, timely, and often — and when there is a problem, to make it right.
Florida policyholders will have more options available at more competitive prices. We’re seeing meaningful signs that the market is improving. We need to stay the course and not be tempted to again seek artificial limits that inhibit competition and slow the market’s recovery.
Tim Cerio is president, CEO and executive director of Citizens Property Insurance Corp.