Florida's 'last resort' property insurer is now state's biggest

(Bloomberg) --Florida is the fastest-growing US state and, with more than 8,000 miles (12,875 kilometers) of coastline, one of the most prone to natural disaster. Now, with peak hurricane season approaching, a nonprofit created as an insurer of last resort has emerged as the state's primary bulwark against damage and destruction.

As private insurers have folded under the weight of claims for earlier storms or curbed business in the state, Citizens Property Insurance Corp. has become Florida's biggest property insurer. Since 2020, the number of properties it insures has tripled to almost 1.4 million. Citizens estimates it may add another 300,000 by the end of the year.

At the same time, its reserves are lower. Its biggest account is as slim as it's been heading into peak hurricane season since at least 2007, and there is a one-in-four chance that a storm this year will wipe it out, according to Citizens' financial statements. If the nonprofit can't meet its obligations, all Florida insurance holders — Citizens customers and everyone else — could be on the hook for the shortfall. Recently, Chief Executive Officer Tim Cerio warned that this is a possibility.

In Florida as in other states, the growing severity of weather-related natural disasters has prompted private insurance companies to raise premiums or exit markets deemed vulnerable altogether, widening what US Treasury Secretary Janet Yellen last month called a "protection gap."

Unlike similar groups in other states, Citizens is required by law to charge premiums at below-market rates. Its surplus has dropped by more than a third since 2015 to $4.7 billion, according to its calculations, and its overall claims-paying ability is about $16 billion. To put that in context, Hurricane Ian caused more than $100 billion in damage last year, the highest toll in state history. 

"The risk is that we are getting bigger," said spokesperson Michael Peltier. "We weren't created to be the largest insurer."

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Since the beginning of 2022, more than a dozen private insurers became insolvent or restricted business in Florida, according to the Insurance Information Institute. This season, national companies including AAA and Farmers Insurance Group said they were scaling back coverage in the state.

Farmers restricted some of its business in the state to "effectively manage risk exposure," said spokesman Trevor Chapman. The market has become "challenging" in recent years, AAA spokesperson Ellen Edmonds said. Inflation and excessive litigation have added to expenses, she said, and the 2022 season triggered a steep and unprecedented rise in the cost of reinsurance. 

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Citizens reported that its reinsurance rates rose 30% last year, and it is asking the Florida legislature to approve an average increase of 14% on premiums that would take effect by the end of the year. As of now, its average premium to insure a single-family home is $3,300, though it reaches as much as $6,800 in the state's southernmost islands. 

Florida property owners covered by private insurers pay $6,000 on average, according to the Insurance Information Institute. Nationally, most homeowners pay less than $2,000. 

"People get angry when they see that windstorm rates are many, many thousands of dollars over the course of a year, sometimes even every month," Miami Beach mayor Dan Gelber said in an Aug. 1 interview with Bloomberg News. Like many of the 2.7 million residents of Miami-Dade county, Gelber is covered by Citizens. "We're all 'last resort' here."

If it exhausts its ability to pay claims, Citizens can levy surcharges on its policyholders of up to 45% of premium value. If deficits remain, it can impose an emergency assessment on all Florida policyholders of as much as 10% of the annual premiums on homes, cars and boats. 

Meanwhile, regulations approved last month enable Citizens to transfer some of its policies to private insurers, and new companies have entered the market unburdened by legacy losses. As many as 184,000 policies could be absorbed by smaller firms, like Slide Insurance Co. in Tampa, though these are likely to be among Citizens' lower-risk inventory.

To encourage other private insurers to remain or expand coverage in the state, Governor Ron DeSantis signed a law that attempts to shield insurance companies from excessive lawsuits that have rattled the industry.

Rising prices have also whetted reinsurers' appetites. Warren Buffett's Berkshire Hathaway boosted its exposure to Florida by 50%, with $15 billion at risk. It also covers 60% of one of Citizens' inland insurance lines. 

The 2023 Atlantic hurricane season, which lasts through November, is expected to be "above average," according to the latest forecast from Colorado State University. It predicts as many as nine hurricanes, including four major ones. 

"As is the case with all hurricane seasons, coastal residents are reminded that it only takes one hurricane making landfall to make it an active season for them," CSU forecasters warned, advising residents to take preparations seriously, "regardless of how much activity is predicted."

--With assistance from Felipe Marques.