As it seeks maximum rate hike, takeouts
The 2022 Florida insurance marketplace reforms are having the desired effect for Citizens Property Insurance, with “significant shifts” reported in litigation. Meanwhile, the state-backed carrier went before regulators at a public hearing last week seeking the maximum rate increases allowed, to take effect November 1. Plus, news of the first big takeout of Citizens policies in a long time.
Litigation: At its claims committee meeting last week, Citizens’ staff referenced as “significant shifts” the following first quarter 2023 data:
- New lawsuits are down 21% compared to the same period last year;
- Only 4% of those lawsuits had no reported dispute prior to filing the lawsuit, a 71% decrease, thanks to the new presuit notice law;
- Assignment of Benefits (AOB) lawsuits are down 44% as compared to last year; but
- Lawsuits with representation at First Notice of Loss (FNOL), which had been declining last year, are once again on the upswing.
New non-litigated claims have increased 79% from April 2022, driven by Hurricane Ian and Nicole claims and increased policy count. New Hurricane Ian claims number 225-250 per week.
Tim Cerio, President & CEO, Citizens Property Insurance
Rate Hike: Citizens went before the Florida Office of Insurance Regulation (OIR) at last Thursday’s televised rate hearing seeking an overall average rate increase of 13.3% over 14 different rate filings – the maximum allowed under the legislatively-mandated rate glide path. Citizens President & CEO Tim Cerio said the recent reforms that eliminated one-way attorney fees and AOB contracts “game changers” that will, over time, help the insurance market.
“Excess litigation has done incredible harm to the capacity of Florida’s private insurance market. This has in very large part caused Citizens’ policy count to double in a two-year period, from about 610,000 to over 1.2 million as of April 30, 2023,” Cerio said. He said the increased policy count increased Citizens’ exposure resulting in larger losses from Hurricanes Ian and Nicole, “which resulted in a 33% decrease to its surplus and a likely required assessment should a moderately sized storm hit this hurricane season.“ He noted the red in the chart below as the added risk and associated cost of paying Citizens assessments, which could include non-Citizens customers.
Cerio said that Citizens ability to charge actuarially-sound rates “is critical to market recovery and promoting depopulation.” He said its rates are artificially low because of the legislatively-mandated glide path. “A residual insurer should never compete with a private market. That is fundamentally unfair to policyholders in the private market. No one wants to pay more for insurance. But even assuming OIR approves Citizens requested rate increase which is, on average, around 13.3%, our policyholders will still be paying on average about 44% below the rest of the Florida market,” Cerio revealed. Its average HO-3 (homeowners) policy costs $3,277 versus $5,788 in the private market, he shared. As a result, Citizens now writes about 50% of the market’s direct written premium in the very hurricane-prone tri-county area of South Florida. Because of the rate gap, Citizens is expecting a $1.3 billion premium shortfall in this policy period, its Chief Actuary Brian Donovan testified.
Florida Insurance Commissioner Michael Yaworsky
Florida Insurance Commissioner Michael Yaworsky agreed with Cerio that the best way for Citizens to achieve needed depopulation is through growth and recovery of the private market. But he acknowledged that SB 2-A‘s requirements for Citizens to achieve actuarially sound rates and not unduly compete with the private market lacks specifics on just how to do that within the existing glide path rate hike cap of 12% this year and 13% in 2024.
“Everywhere else I can think of off the top of my head in statute where the legislature is calling for Citizens to move away from an actuarial sound based basis, such as glide path or measures that would typically be considered unfairly discriminatory, they have prescribed a very specific manner in which that determination is to be made. And in this case that does not exist,” the Commissioner told Cerio. “And so we’re going to have to have very, very reliable data as to the determinations of competitiveness before we’re in a place where we can move away from an actuarially sound basis of this determination in this case.” (You can read more of his comments and the public hearing testimony in this LMA Extra, including the up to 50% rate increase on non-primary residences allowed under the reforms.)
OIR is expected to make a decision on the rate hike request this summer. In the meantime, Citizens is now growing at about 8,000 policies per week, with a projected policy count of 1.7 million by year’s end and $645 billion in total insured value. Cerio recently appeared on the Deeper Dive podcast with Dara Kam.
Takeouts: The hearing came a week after OIR approved a 26,000 Citizens’ policies takeout by two private insurance carriers and all eyes will be on August 22, the official date of policy assumption. Historically, companies attempting to acquire Citizens policies only were able to assume about 10% of the targeted number they were seeking. The legislature is attempting to increase that percentage with the 2022 reforms that changed the eligibility to remain a Citizens policyholder by requiring that private insurance company coverage has to be 20% more expensive than their current Citizens’ policy.
I made the case to Channel 5 in West Palm Beach that rate increases are a good thing in trying to return Citizens to its legislatively-created role as a true insurer of last resort to reduce taxpayer liability from potential future storm assessments by Citizens.
LMA Newsletter of 6-12-23
