In a significant move aimed at stabilizing Florida’s precarious property insurance market, state regulators have approved a plan to transfer over 400,000 policies from Citizens Property Insurance Corporation to private insurers this October. This “depopulation” effort is part of ongoing measures to reduce the financial exposure of Citizens, which has ballooned to become the largest property insurer in Florida.
The Need for Depopulation
Citizens Property Insurance was originally created as an insurer of last resort, intended to provide coverage for homeowners who were unable to secure insurance through the private market. However, in recent years, the number of policies held by Citizens has surged, reaching over 1.2 million by mid-2024. This growth has been driven by the financial struggles of private insurers, who have faced challenges due to Florida’s high hurricane risk and an increasingly litigious environment.
The rapid expansion of Citizens’ policy base has raised concerns among state leaders and insurance regulators. The core issue is the financial risk associated with holding such a large volume of policies, particularly in the event of a major hurricane. If Citizens were unable to cover claims following a severe storm, the shortfall could lead to “assessments,” or extra charges, levied on policyholders across the state, including those who are not insured by Citizens.
Key Elements of the Takeout Program
The newly approved depopulation program will allow private insurers to assume up to 413,808 policies from Citizens starting in late October 2024. This transfer is timed to occur as the hurricane season begins to wind down, reducing the immediate risk of a catastrophic event.
Policyholders will be required to accept offers from private insurers if the premiums are within 20% of their current Citizens premium. However, to protect consumers from exorbitant rate increases, regulators have capped allowable premium increases from private insurers at 40% above the Citizens rate. This measure is intended to shield policyholders from potentially harmful financial impacts while encouraging the transition to private market solutions.
Impact on the Insurance Market
Citizens President and CEO Tim Cerio has expressed confidence that this depopulation effort will significantly reduce the number of policies held by Citizens, with expectations to bring the total below 1 million by the end of 2024. This move is part of a broader strategy to return Citizens to its original role as a last-resort insurer, rather than a dominant player in the market.
While the depopulation program is seen as a necessary step to stabilize the insurance market, it has also raised concerns among policyholders who may face higher premiums as they move to private insurers. State leaders and insurance regulators are closely monitoring the situation to ensure that the transition is as smooth as possible and does not place undue burden on Florida homeowners.
As Florida continues to grapple with the dual challenges of a high-risk hurricane environment and a fragile insurance market, the success of this depopulation effort will be a critical test of the state’s ability to manage and mitigate financial risks in the face of natural disasters.
Sources:
- The Capitolist, August 2, 2024: Insurers Approved to Take Citizens Policies.
- Insurance Journal, August 2024: Florida OIR Approves Another 54,000 Citizens Takeouts.
- Citizens Property Insurance Corporation, August 2024: New Rules for Citizens’ Depopulation Program.