Fears of foreclosure, reinsurance costs, lawmaker investors
A dire warning from a South Florida county commissioner on an impending condominium foreclosure crisis due in part to ever-rising insurance costs, how to stop the “rollercoaster ride” of reinsurance pricing, and Citizens Property Insurance has a good September takeout, but is it sustainable? Plus, questions on whether Florida lawmakers should be allowed to start or invest in a new property insurance company. It’s all in this week’s Property Insurance News.
Pending Foreclosure Crisis: Broward County Commissioner Mark Bogen was quoted in a recent Sun Sentinel article as saying “People are going to lose their homes. Foreclosures are increasing,” among condominium owners. The comment came and was echoed at a workshop among county officials and legislators. Two factors were identified: higher assessments by condominium associations to meet tougher state reserve requirements and even more so, higher insurance costs, amounting to additional assessments of up to $200 per month per condo owner. Former Citizens Property Insurance President & CEO Barry Gilway said last year that “the entire foundation of the Florida property insurance marketplace is based upon reinsurance…and that impacts directly the consumer as a pass through cost.” That’s why I’m a fan of the proposed Florida Insurance Rate Reduction Mechanism (FIRRM) to build upon the 2022 reforms, by creating more state backed reinsurance at about 10-15 cents of every dollar we pay versus private reinsurance at 35-40 cents of every dollar we pay.
Citizens Takeouts: Barry Gilway also said high reinsurance costs make up “most of the rollercoaster ride” of Citizens’ up and down policy count that he points out is a direct result of private insurance industry profitability. There is encouraging news on that front though. Of the 184,000 Citizens policies regulators approved for this recent September-into-October takeout, 99,773 were successfully transferred to the private market as of October 17 (a 54% takeout rate, more than double the usual 25% rate). Yet Citizens found that among those policyholders receiving takeout offers, 116,121 were not eligible to remain with Citizens. (Policyholders receiving offers within 20% of their Citizens renewal premium are not eligible to remain at Citizens.) But Citizens policy count is 1.33 million and growing at an average weekly rate of 6,000 policies. While it is good news that private companies once again want to and are able to take on more Citizens policyholders, there is worry that takeouts in 2024 will slow as we near next summer’s storm season and its policy count grows at a rate of 24,000 policies a month. Meanwhile, regulators last week approved four insurance companies to takeout as many as 125,000 policies in January 2024. This follows this month’s (November) takeout seeking up to 202,000 policies and the December takeout seeking 153,000 policies. Stay tuned!
Barry Gilway
Lawmakers as Insurance Company Investors: Much has been made in some media reports of State Senator Joe Gruters’ (R-Sarasota) interest in creating a new property insurance company in Florida. What they fail to report – and are connecting the dots in the wrong way – is the bigger picture. Barry Gilway told the Citizens Board in September 2022 that the quality of its book of business is improving, with more preferred policies (4% then were brand new homes for example) available for takeout, and called it “the investment opportunity of a lifetime. That’s $2.3 billion of business that’s available to aggressive investors in the marketplace with no acquisition costs. It’s a dream,” said Gilway.
Indeed, the 2022 and 2023 legislative reforms are bringing new or existing companies into Florida, unburdened by mounting hurricane claims and “claims creep” created by unscrupulous contractors and lawyers, and so assume relatively low-risk properties from Citizens. These news stories actually show some lawmakers willing to put their (personal) money where their mouth is. We shouldn’t discourage investment or the creation of new insurance companies from forming that meet stringent state insurance regulation requirements, providing more consumer choice for Floridians.
LMA Newsletter of 11-6-23
