Citizens Rate Disparity Likely to Grow
The disparity between Citizens Property Insurance Corporation’s rates and those in the admitted market is likely to grow. Premiums have increased significantly in the admitted market in recent years, driven by well-documented problems with inflated, represented and litigated claims. These concerns have been compounded by broader inflationary pressures in the economy, including supply chain disruptions and increases in costs of building materials and labor.
While admitted market rates continue to see double-digit rate increases each year, Citizens lags behind. Historically, Citizens’ annual rate changes were limited to ten percent for any policyholder. The legislature revised this under a scale that now allows a per-policyholder change of 11 percent. Nonetheless, on average, this means Citizens’ rate changes typically are in the single digits. This has caused Citizens’ rates to fall severely behind the admitted market in many cases notwithstanding that Citizens sees the same problems with inflated claims and litigation. In turn, Citizens’ policy count has exploded from a its low point of little over 400,000 to now more than 900,000. By the end of this year, Citizens likely will have more than 1,000,000 policyholders.
These concerns will not diminish anytime soon. Recent rate hearings held by the Florida Office of Insurance Regulation show admitted insurers continue to have significant rate needs. Increased reinsurance costs in the 2002 renewal cycle will add to these needs going forward. Meanwhile, Citizens proposed an average rate change of 10.7% for its homeowners program in its most recent filing. The Office of Insurance Regulation, however, trimmed this to 6.4% in its order approving Citizens’ final rates.
The end result is that admitted insurers have reduced capacity as elevated claims costs and rising reinsurance costs have eroded underwriting results and surplus. Meanwhile, the state-backed insurer established as a residual market charges rates that in many cases are far below rates admitted insurers are charging. As long as this combination continues, Floridians should expect the policy count at Citizens’ to skyrocket. This is particularly concerning when Citizens’ reinsurance program was undersubscribed in 2022, resulting in more residual exposure to all Floridians.