CITIZENS…The Long & Winding Road!

Politically it’s been arduous but, the decades long journey Citizens Property Insurance Company (Citizens) has been on appears to be nearing an end.

That’s not to say Citizens will be back where it started. Far from it. It’s meant to imply, however, that Citizens has done so much, come so far, morphed so many times, it may now have nowhere left to go.

Once upon a time it’s policy count and total exposure hovered at mind boggling levels–one and a half million policyholders and more than a half “trillion” dollars in total loss potential. It was arguably the most overexposed insurer in the world.

Today it has 661,161 policies and $201,957,396,325 in total exposure. (See NOTE #1 below)

A job well done–with much, much more to be done!

At one time Citizens’ predecessor (FRPCJUA) insured 934,000 Florida residences. Through various takeout schemes, mostly those paying bonuses to insurers, it depopulated to only 60,000 homeowners, dwelling and mobile home policies. Another job well done; one that was eventually undone–mostly by storms, both meteorological and political.

That’s just one leg of the journey. There are others.

Consider the long & winding road from “take outs” to “opt outs”.

Once upon a time those with a “takeout” offer knew it wasn’t an offer at all. It was a command.  And, better (or worse?) if you were not in Citizens, either because you never applied or because you were taken out, you couldn’t get into it if there was any carrier willing to write you using an approved form at an approved rate.

For various reasons, mostly because Citizens rates and coverages were competitive, it didn’t work to keep the population down.

Still, it meant that even if you received a private offer for an HO-8 at twice the premium, you couldn’t legally access Citizens. This despite being lured there by an HO-3 with all the trimmings.

At one point the OIR (DOI actually) approved 10,000 HO-3’s for takeout by a company that converted them all to an H0-8 form at renewal; increasing the policyholders’ rate by an average of 20%.   And it was legal!

There’s more.

Citizens assessment burden is legendary. Of course, it’s only the coastal account (formerly the high-risk account, formerly the wind pool) that has a realistic chance of a deficit and thus an assessment.

Today, the first tier assessment goes to Citizens policyholders capped at 15% of their premium for each of three accounts. If that doesn’t cover the shortfall, then it’s on to the private market, and next to the private market including Citizens. (See NOTE#2 below)

Here’s the thing. In the beginning, just over ten years ago, the only policyholders required to pay a Citizens assessment were those in the private market. Citizens policyholders were exempt from paying their own deficit!

I swear I’m not making this up!

In other words, non-Citizens policyholders were assessed to pay for those who were, by definition, already paying less than they should for what was often better coverage!!

Perspective: what would be your reaction if you were forced to leave Citizens, got a 20% rate increase for an HO-8 and, while rebuilding after a hurricane, received an assessment to subsidize those with better coverage in Citizens?

Frankly, it was yours truly who first proposed that Citizens policyholders at least participate in assessments. Actually I proposed they should be the only ones assessed, something I still believe.

Next stop on this increasingly winding road is depopulation.

Today we’ve got “Consumer Choice” for takeouts in tandem with mandatory participation in a Clearinghouse. Huh?!

Say what you want about the cost or necessity of a Clearinghouse; it is, none the less, instrumental in the current decline in Citizens policy count. Carriers are jumping on the takeout bandwagon, in part, because the Clearinghouse makes the policies available to the open market anyway and, on a less favorable basis than takeout.

This depopulation part of Citizens journey started when Bill Nelson was Insurance Commissioner and Jay Newman was its’ president–a new statute was drafted called “decertification.”  Its’ purpose? To allow the board of Citizens to continuously depopulate by removing and/or keeping out policies whenever and wherever the private market was willing to write them.

Here’s what both the law and Citizens Plan of Operation authorized the board to do:

“…establish, subject to approval by the office, different eligibility requirements and operational procedures for any line or type of coverage for any specified county or area if the board determines that such changes are justified due to the voluntary market being sufficiently stable and competitive in such area or for such line or type of coverage…”

Again, for reasons both political and practical this language has been ignored and Citizens circuitous journey has lead us instead to where policyholders can “opt-out” of takeout but are forced out or kept out by a mandatory Clearinghouse. (See NOTE#3 below)

Conclusion: It’s been a long, winding & expensive road, but…we are where we are–the takeouts, the Clearinghouse, the diminished coverage forms, the restructured assessments, the politics and nine (9) storm free seasons have finally slowed the roller coaster. 

The question now is not so much how we got here, but …how do we keep from making the trip all over again?


NOTE #1: This doesn’t include thousands of policies tagged for takeout but continuing to be temporarily serviced by Citizens and, it’s down from $502 billion in statewide exposure.

NOTE #2: Florida Statutes allow Citizens to assess its own policyholders on a three-tiered basis, as follows:

  • Citizens policyholders could receive up to a 45% surcharge for 12 months
  • If the first assessment is not enough to cover the deficit, it may assess non-Citizens insurance policies up to 2% of premium or 2% of the deficit, whichever is greater.
  • If the first and second assessment is not enough, it may levy a 10% assessment on “all” policyholders including those in Citizens and those insured by private carriers.

NOTE #3: The Decertification statute is pretty simple, still on the books and works in tandem with both “takeout” and the Clearinghouse. If Citizens board determines a territory, a county or part of a county, has a private market that is stable and competitive, it can “decertify” that area as eligible for Citizens. It could also select specific coverages (wind, sinkhole, etc) or lines of business (Homeowners, DP’s, etc) to decertify as eligible and could apply it to new applications, renewals or both. Could this save money over the current depopulation approach and Clearinghouse? You decide.

My recollection is that the decertification language was placed in the law when Citizens predecessor, the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA), was seeking to depopulate despite it being more desirable to some policyholders for various reasons.  It’s logical to assume it remains in the law today for the same reason.

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