Why Should Policyholders Care About the Size of Citizens?

With this article Johnson Strategies (JS) proudly announces the addition of another content contributor complementing our existing four JS experts. His name is Don Brown. Don is a former Florida State Representative and a renowned expert in legislative reforms who has dedicated his career to addressing complex issues within Florida’s insurance market. He’s not only a friend, he’s the consummate partner for the existing JS team with numerous white papers in the hopper and one very informative book which you’ll soon learn more about, (see below).  

This brief article is co-written with Dennis Ross who, like Don, also served in the Florida House and is a former U.S Congressman.   

Agents struggling to explain the need to depopulate Citizens Property Insurance Corporation (Citizens) will find this helpful and should feel free to share it with all homeowners, especially those insured in Citizens. 

Why Should Policyholders Care about the Size of Citizens?
By Dennis Ross and Don Brown

Lately, we have been hearing hopeful reports that the property insurance reforms recently passed by the Florida Legislature are beginning to work and that the cost of homeowners insurance may begin to retreat. Those same reports often link these hopeful signs to the future size of Citizens Property Insurance Company. This linkage begs the question, “why should I care about the size of Citizens?” A complete answer to this question can be complicated but can be boiled down to one word: assessments.

There are assessments you are obligated by Florida law to pay if Citizens or the Florida Hurricane Catastrophe Fund (FHCF) or the Florida Insurance Guaranty Association (FIGA) run out of money to pay their claims. In other words, you could be required to pay an assessment to help pay the claims of your neighbor, or worse, the owner of a beachfront mansion.

How do assessments work?

Florida has long relied upon Citizens, FHCF and FIGA as a safety net to finance catastrophe loss.

The role of Citizens is to provide homeowners coverage for owners of property that cannot find coverage from private insurance companies. Citizens coverage, in most cases, is marginally less expensive than private insurance coverage. However, the rates Citizens is allowed to charge are limited by law. (See Note#1 below).  So, unlike a private insurance company who is expected to pay all their claims, Citizens is designed to rely not only on the premiums they collect but assessments they are authorized to levy on all Florida policyholders with a few exceptions. So, if Citizens policyholders run out of money to pay their claims, they can charge an assessment not only on other homeowners but on auto insurance policies, boat policies and business policies. But that is not the end of it.

The Florida Hurricane Catastrophe Fund was created to provide “backup” coverage for Florida homeowners insurance companies. Those companies are required to pay a premium for this “backup” coverage but if the FHCF runs out of money to pay their claims, they too are allowed to charge an assessment on homeowners, auto, boat, and business policies to cover their losses.

Finally, FIGA was created to pay the claims of Florida homeowners who are insured by an insurance company that becomes insolvent. If you are wondering how they find the money to pay those claims, you guessed it: they can pass assessments on other Florida policyholders.

With all these potential assessments hovering over Florida policyholders, it is not only important for the state to stabilize our property insurance market to prevent more insurance company insolvencies, but to also transition as many policies out of Citizens into the private insurance market. Fewer policies in Citizens equals less risk of assessments on policyholders who are already paying for their own property insurance coverage.

Continuing to shift policies from Citizens to private insurance companies is not only an encouraging sign for our state’s property insurance market, but also good news for Florida policyholders.

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Note #1: Since this article was written the Florida Legislature implemented a requirement regarding actuarially sound rates for Citizens.  To read more about this and the details associated with recent Citizens rate increases see “Citizens Insurance board approves 2025 rate hike of 14%.”

Stay tuned for an announcement of Don Browns’ new book now available at: www.my9principles.com or https://www.amazon.com/author/dondbrown

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