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Citizens Property Insurance Corporation (Citizens) was created in 2002 from the merger of two other entities to provide both windstorm coverage and general property
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...
for home-owners who could not obtain insurance elsewhere. It was established by the Florida Legislature in Chapter 627.351(6) Florida Statutes as a
not-for-profit A not-for-profit or non-for-profit organization (NFPO) is a Legal Entity, legal entity that does not distribute surplus funds to its members and is formed to fulfill specific objectives. While not-for-profit organizations and Nonprofit organ ...
insurer Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...
of last resort, headquartered in
Tallahassee, Florida Tallahassee ( ) is the List of capitals in the United States, capital city of the U.S. state of Florida. It is the county seat of and the only incorporated municipality in Leon County, Florida, Leon County. Tallahassee became the capital of Fl ...
, and quickly became the largest insurer in the state. The company has no connection to Louisiana Citizens Property Insurance Corporation, the equivalent entity in
Louisiana Louisiana ( ; ; ) is a state in the Deep South and South Central regions of the United States. It borders Texas to the west, Arkansas to the north, and Mississippi to the east. Of the 50 U.S. states, it ranks 31st in area and 25 ...
, or several similarly named "for-profit" subsidiaries in the Hanover Insurance Group.


History


Catastrophe

Hurricane Andrew Hurricane Andrew was a compact, but very powerful and devastating tropical cyclone that struck the Bahamas, Florida, and Louisiana in August 1992. It was the most destructive hurricane to ever hit Florida in terms of structures dama ...
in 1992 was the costliest storm the
United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
had experienced, with $26.5 billion in damage. It took a huge bite out of the reserves for claims held by 30 insurance companies doing business in Florida. Eleven insurance companies were bankrupted, while others stopped writing or renewing property insurance policies in the state. Those that remained raised premiums and deductibles across the board and limited the number of high-risk policies they wrote. Almost 1 million coastal homeowners were unable to find any company willing to insure their homes, so the Florida Legislature authorized the formation of the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA) and the Florida Windstorm Underwriting Association (FWUA) as the insurers of last resort. The ''Florida Hurricane Catastrophe Fund'' was also created and managed by the state as a resource for Florida consumers and insurers. It is funded by assessments to every property insurance policy in the state.


Post Andrew

Hurricane damage between 1992 and 2003 was relatively manageable, with none or one major hurricane each year except 1998 (which had two). During that time, new insurance companies were started and existing carriers began writing policies again. By 1999, Florida Insurance Commissioner Bill Nelson stated that FRPCJUA and FWUA were close to shifting most of their 711,000 policies to private insurers. In 2002, the Florida Legislature passed legislation to merge the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA) and the Florida Windstorm Underwriting Association (FWUA). This resulted in the creation of Citizens Property Insurance Corporation (Citizens), whose goal is to more efficiently and effectively provide insurance to, and serve the needs of, home-owners in high-risk areas and others who cannot find coverage in the open, private insurance market.


High activity

There were four major storms in 2004 that made landfall in Florida, with total damages exceeding $57 billion. The following year brought five major storms, including Katrina, the most expensive Atlantic hurricane of all time. Once again, several companies pulled out of the Florida market due to an extraordinary number of
hurricane A tropical cyclone is a rapidly rotating storm system with a low-pressure area, a closed low-level atmospheric circulation, strong winds, and a spiral arrangement of thunderstorms that produce heavy rain and squalls. Depending on its ...
and new
sinkhole A sinkhole is a depression or hole in the ground caused by some form of collapse of the surface layer. The term is sometimes used to refer to doline, enclosed depressions that are also known as shakeholes, and to openings where surface water ...
related claims. Citizens became not just the insurer of last resort, but the insurer of only resort for many Floridians. As of 2005, Florida owed almost $5 billion, which would be recovered through insurance policy assessments. The cost of insurance and its availability became an important "hot button" issue in Florida, especially in the
2006 elections The following elections occurred in the year 2006. * Elections in 2006 * Electoral calendar 2006 * 2006 Acehnese regional election * 2006 American Samoan legislative election * 2006 Bahraini parliamentary election * 2006 Costa Rican presidential e ...
. Through 2006, Citizens Insurance charged its customers the highest rate approved by the Florida Office of Insurance Regulation to avoid competing with private carriers. Insurance agents were prohibited from writing
policies Policy is a deliberate system of guidelines to guide decisions and achieve rational outcomes. A policy is a statement of intent and is implemented as a procedure or protocol. Policies are generally adopted by a governance body within an orga ...
through Citizens if there was a private (not surplus lines) carrier that would write the risk. If a qualified insurance company was willing to take a group of policies, Citizens Insurance would transfer them to that company and cancel coverage. Customers had no recourse.


Legislation

Florida Senate Bill 2498, known as the ''Glitch Bill'', was signed into law by Governor Crist on June 11, 2007. This legislation permitted agents to write a Citizens policy for customers if the premium for a comparable policy offered by a private carrier was 15% (instead of 25%) more expensive. Customers were also allowed to stay with Citizens Insurance if they were notified that their policy was being assigned to a private carrier. After 2010, eight global insurance carriers, including State Farm, entered or re-entered the Florida market. While the cost of
reinsurance Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself (at least in part) from the risk of a major claims event. With reinsurance, the company passes on ("cedes") some part of its own insu ...
fell by 10% in 2010 and was expected to decrease more in 2011, the cost of insurance to consumers remained the same.


Post-recession

In 2010, State Farm and Renaissance jointly formed DaVinci Reinsurance Ltd. in
Bermuda Bermuda is a British Overseas Territories, British Overseas Territory in the Atlantic Ocean, North Atlantic Ocean. The closest land outside the territory is in the American state of North Carolina, about to the west-northwest. Bermuda is an ...
, which covered more than 3.5 million Florida homes in 2010. That same year, Japan-based
Tokio Millennium Re Ltd. Tokio Millennium Re Ltd. (abbreviated as TMR) is a reinsurance company headquartered in Hamilton, Bermuda with branches in Stamford, Connecticut, USA, Zurich, Switzerland and Sydney, Australia. The lines of business written include property cata ...
became an approved Florida reinsurance vendor. As of 2011, Citizens had cash and investment totaling $11.3 billion and 1.3 million policyholders. The
Florida Council of 100 The Florida Council of 100 is a private, non-profit, non-partisan organization of Florida business leaders who advise the state's governor. It was founded in 1961 and is headquartered in Tampa, Florida. History The association was founded in 1961 ...
published a position paper in 2010 entitled, ''"Into the Storm: Framing Florida's Looming Property Insurance Crisis"''. Chief among problems identified was that Citizens Insurance was undercapitalized and charges "rates that are not actuarially sound". The study also found that low-risk property owners were subsidizing high risk policies. They concluded that rates must be based on risk factors, including "geographical location, age of structure, and construction type". Florida House Bill 1495, passed in 2009, allows Citizens to raise rates gradually over five years to become actuarially sound. This was intended to shift the risk from taxpayers to the private sector. In the spring of 2012, Florida Governor
Rick Scott Richard Lynn Scott ( Myers; born December 1, 1952) is an American attorney, businessman, politician, and United States Navy, Navy veteran serving as the Seniority in the United States Senate, senior United States senator from the state of F ...
stated in a survey with the Florida Council of 100 that Citizens Insurance had $504.8 billion in risk and just $6.1 billion in cash reserves. PolitiFact Florida, a
fact checker A fact is a truth, true data, datum about one or more aspects of a circumstance. Standard reference works are often used to Fact-checking, check facts. Science, Scientific facts are verified by repeatable careful observation or measurement by ...
of the
Tampa Bay Times The ''Tampa Bay Times'', called the ''St. Petersburg Times'' until 2011, is an American newspaper published in St. Petersburg, Florida, United States. It is published by the Times Publishing Company, which is owned by The Poynter Institute ...
and
Miami Herald The ''Miami Herald'' is an American daily newspaper owned by McClatchy, The McClatchy Company and headquartered in Miami-Dade County, Florida. Founded in 1903, it is the fifth-largest newspaper in Florida, serving Miami-Dade, Broward County, Fl ...
, researched Scott's claims. They concluded that while the company did have $500 billion in exposure, storms would have to damage or destroy every Citizens-insured home in all 67 Florida counties. A "century storm", with a 1% chance of occurring in any year, would generate no more than $21 billion in claims. Regarding the resources available to pay claims, the Citizen's own website states that their "Claims‐Paying Ability" is $19.5 billion. There is a $1.5 billion disparity, prompting the governor to order Citizens to reduce its risk. Barry Gilway was hired on June 18, 2012, as president and chief executive officer of Citizens Property Insurance Corporation, replacing Tom Grady. With 42 years of experience in the insurance industry, he has a reputation as a turnaround specialist. He was keenly aware that his first priority was to shrink the number of Citizens policies. Throughout 2012, Citizens asked 174,000 of its nearly 1.4 million policyholders to move their policies to five private insurers. Approximately 25,000 of that group chose to remain with Citizens, but Florida's consumer insurance advocate Robin Smith Westcott warned that, "For the consumer, there really isn't enough information." The state determined that those five private insurers were financially sound and able to absorb more customers, but issues such as higher premiums, customer responsiveness and number of consumer complaints must be determined by the policyholder. Florida law gives the consumer 30 days from notification to decline their policy transfer before it is assumed by a private firm. On February 8, 2013, Senator
Jeff Brandes Jeffrey P. Brandes (born February 12, 1976) is an American politician who served as the Florida State Senator from the 24th district from 2016 to 2022. A member of the Republican Party, he has been elected from the Pinellas County area to the F ...
filed Florida Senate Bill 724, a comprehensive bill to overhaul Florida property insurance law to avoid new "hurricane taxes" which would be necessary if another catastrophic hurricane ravaged the state. The proposal is unpopular among many Citizens customers because it would mandate more rate increases to what they consider to be already high premiums. A similar bill was defeated in 2012. However, businessman, and former
US Representative The United States House of Representatives is a chamber of the bicameral United States Congress; it is the lower house, with the U.S. Senate being the upper house. Together, the House and Senate have the authority under Article One of th ...
Tom Feeney Thomas Charles Feeney III (born May 21, 1958) is an American politician from Orlando, Florida. He represented . He was defeated in the 2008 election by Democrat Suzanne Kosmas. Early life He was born in Abington, Pennsylvania, a suburb of P ...
commented, "It is unfair to continue to require 77 percent of Florida homeowners to subsidize Citizens policies, in addition to 100 percent of businesses, charities, religious institutions, renters, automobile policyholders, local governments and school boards." The bill did not make it out of the Senate Banking and Insurance Committee before the legislature adjourned in May 2013.


Takeout policies

In an effort to encourage more private companies to acquire homeowners policies serviced by Citizens (known as ''takeout'' policies), the
Florida Office of Insurance Regulation The chief financial officer of Florida is an elected statewide constitutional officer of Florida. The office was created in 2002 following the 1998 reforms of the Florida Cabinet. The CFO is a combination of the former offices of comptroller and ...
(FOIR) was authorized to provide monetary incentives based on the number of Citizens policies acquired. In May 2013, just three of the eight members of the Citizens Board of Governors approved a deal in which Heritage Property and Casualty Insurance, formed in 2012, was offered $52 million to take over 60,000 accounts ($867 per policy). Florida CFO
Jeff Atwater Jeffrey Hardee Atwater (born April 8, 1958) is an American financier who served as the 3rd Chief Financial Officer of Florida from 2011 to 2017, and currently serves as Vice President for Strategic Initiatives and Chief Financial Officer at Flor ...
admitted that Heritage did not have the financial strength to take over the policies without the incentive, but Citizen's President Barry Gilway insisted that Heritage was "one of the most well-capitalized" in Florida. In March 2013, while negotiations were in progress, Heritage made a $110,000 donation to the re-election campaign of Governor Scott. A spokesman for the governor stated that the Citizens deal was not influenced by the governor. State leaders criticized the deal as "
corporate welfare Corporate welfare refers to government financial assistance, Subsidy, subsidies, tax breaks, or other favorable policies provided to private businesses or specific industries, ostensibly to promote economic growth, job creation, or other public b ...
for a politically connected startup". Former
Chief Financial Officer of Florida The chief financial officer of Florida is an elected statewide constitutional officer of Florida. The office was created in 2002 following the 1998 reforms of the Florida Cabinet. The CFO is a combination of the former offices of comptroller and ...
Alex Sink Adelaide "Alex" Sink (born June 5, 1948) is an American former politician and financier. A member of the Democratic Party, Sink was the Chief Financial Officer for the state of Florida and treasurer on the board of trustees of the Florida State ...
criticized the transaction, noting that Florida law limited the incentive to $100 per policy. She was also concerned that Heritage's reinsurance may not contain full risk transfer. New insurance companies in Florida must be approved by the Office of Insurance Regulation (OIR), which reviews the firm's business plan, projections and financial condition. The judgment of the OIR has been questioned because six of the 18 companies licensed to write "takeout" policies between 2007 and 2011 failed, even though Florida had no major hurricanes during that time frame. Florida taxpayers were forced to cover $400 million in losses. Despite concerns about the OIR, "State regulators have approved six property insurers to remove up to 151,000 policies from state-run Citizens Property Insurance Corp. in February
014 014 may refer to: * Argus As 014 The Argus As 014 (designated 109-014 by the Ministry of Aviation (Germany), RLM) was a pulsejet engine used on the German V-1 flying bomb of World War II, and the first model of pulsejet engine placed in mass pr ...
.. Florida's Office of Insurance Regulation last month approved First Community Insurance Co. to take out as many as 51,249 Citizens policies, while Safepoint Insurance Co. may remove up to 40,000 policies. Elements Property Insurance Co. and Heritage Property Casualty Insurance Co. each have been approved for up to 20,000 policies. Southern Fidelity Insurance Co. and Southern Fidelity Property & Casualty can remove 10,000 each. Private insurers have taken out more than 312,000 Citizens policies this year. itizensPresident Barry Gilway has said the goal is to trim Citizens down to about 800,000 policies." As of April 2014, Citizen policies fell below one million, to 940,000. Cash reserves totaled $7.6 billion, a record.


Model change

Since the 2005 pull back by insurance giants Allstate, State Farm, etc., small, in-state companies have been taking a larger share of policies. These start-ups have not followed the traditional insurance model by accumulating cash reserves to cover expenses in high claim years. Instead, they pay as much as half of the policy premium for reinsurance to
offshore companies The term "offshore company" or "offshore corporation" is used in at least two distinct and different ways. An offshore company may be a reference to: * a company, Corporate group, group or sometimes a division thereof, which engages in offshorin ...
to cover claims. In the seven years since the last major Florida hurricane, profits have risen, but many small companies shifted that money into affiliated businesses and ignored the need for a reserve. Insurance rates were based on the company making a reasonable profit after expenses, which included funding a reserve. The OIR suggests that insurance companies have reserves and reinsurance to cover a once in 100-year storm. Many firms in past years purchased less, and if claims exceeded reinsurance and reserves, they were taken over by the state, who paid off remaining claims. Those owners suffered no penalty for failing to act in an ethical manner. As the 2013 season started, pressure on insurers to lower rates was high because reinsurance costs had fallen by 15% since 2012, which also had lower costs. Claim expenses were down thanks to seven years without a major hurricane, and rate hikes during those years increased revenue from premiums.


Post Michael situation

As of 2019, Citizen's policy count had dropped to 419,000 but rose again due to a number of issues. Some companies stopped writing policies in high-claim South Florida, refused to renew where roof age exceeded 10 years or the home was built prior to
Hurricane Andrew Hurricane Andrew was a compact, but very powerful and devastating tropical cyclone that struck the Bahamas, Florida, and Louisiana in August 1992. It was the most destructive hurricane to ever hit Florida in terms of structures dama ...
, before
Hurricane-proof building Tornadoes, cyclones, and other storms with strong winds damage or destroy many buildings. However, with proper design and construction, the damage to buildings by these forces can be greatly reduced. A variety of methods can help a building survi ...
codes were adopted. Since April 2021, four insurers were closed as insolvent. One of those, Avatar Property & Casualty, had 37,000 former customers looking for an insurer. Unfortunately for 2,000 of them, they had pending claims against Avatar, and most companies have underwriting guidelines that prohibit writing a new policy for a property with an open claim. Lexington Insurance Company announced that they will discontinue home insurance, sending another 8,000 property owners to search for a new insurer. Lexington specialized in homes worth $1+ million and Citizens will only insure property values less than $700,000, so Citizens was not an option. Citizen's Policies numbered 807,910 on March 25, 2022. When the regular Florida legislative session ended in March 2022, the Florida Senate had passed a bill to limit “free roof” claims and similar lawsuits, but the Florida House did not.
Demotech Demotech, Inc., is an American insurance rating agency headquartered in Columbus, Ohio, that focuses on independent, regional, and specialty companies in the property and casualty insurance (P&C) industry. It is independent from the companies that ...
is the company that issues financial stability ratings for 50 Florida-based insurers. On March 23, 2022 the top five executives from Demotech sent a letter to Florida's Governor plus the Senator and House leadership entreating them to pass reforms before the start of
Atlantic hurricane season The Atlantic hurricane season is the period in a year, from June 1 through November 30, when Tropical cyclone, tropical or subtropical cyclones are most likely to form in the North Atlantic Ocean. These dates, adopted by convention ...
June 1. Failure to do so would cause Demotech to downgrade the ''financial stability ratings'' for "a number" of Florida insurers. Sen.
Jeff Brandes Jeffrey P. Brandes (born February 12, 1976) is an American politician who served as the Florida State Senator from the 24th district from 2016 to 2022. A member of the Republican Party, he has been elected from the Pinellas County area to the F ...
and other authorities have warned that collapsing companies would cause massive growth of Citizens Property Insurance Corp, a huge bailout from the Florida Hurricane Catastrophe Fund and threaten the thriving real estate market. Following
Hurricane Ian Hurricane Ian was a devastating tropical cyclone which was the third costliest natural disaster, weather disaster on record worldwide. It was also the deadliest hurricane to strike the state of Florida since the 1935 Labor Day hurricane, and ...
in October, Citizen's policy count exceeded 1.1 million and the company was projected to insure 15% of the market by end of 2022. From early 2022 to the first quarter of 2023, seven Florida insurers had been declared insolvent including United Property & Casualty Insurance (UPC) with 135,000 policies. Their policies were concentrated in Southwest Florida and experienced 25,000 claims with losses of $864 million from Hurricane Ian. The Florida Insurance Guaranty Association board met on March 31 and filed for an emergency assessment of 1% on all Florida property insurance policies. That is in addition to a 0.7% for 2022, a 1.3% assessment from July 1 2022 to June 30 2023, and another 0.7% ending December 31 2023. As of April 7, 2023 Citizen's policies numbered 1,248,000. Citizens Insurance Board of Governors submitted a 14.2% rate increase on March 31, 2023 effective in November. However, Florida statutes limit rate increases on homesteaded property to 12% per year. In August 2023, the
Florida Office of Insurance Regulation The chief financial officer of Florida is an elected statewide constitutional officer of Florida. The office was created in 2002 following the 1998 reforms of the Florida Cabinet. The CFO is a combination of the former offices of comptroller and ...
(FOIR) approved rate increases for commercial customers an average of 9.2% while rejecting the residential rate proposals that averaged 12% because they were based on "''overall'' actuarial soundness, instead of ''individual'' actuarial soundness".


Depopulation

Despite new state regulations that required homeowners with Citizen's Insurance to also purchase Federal Flood Insurance, June 2023 saw the number of Citizen’s policies balloon past 1.3 million. Two private companies agreed to accept 26,000 Citizens policies in spring 2023. Citizens Insurance is expected to continue depopulating policies until they reach an acceptable number. Florida Governor
Ron DeSantis Ronald Dion DeSantis (; born September 14, 1978) is an American politician, attorney, and former United States Navy, naval officer serving as the 46th List of governors of Florida, governor of Florida since 2019. A member of the Republican Pa ...
admitted that Citizen's Insurance was not solvent: "If you did have a major, major hurricane hit with a lot of Citizens property holders it would not have enough to pay out." DeSantis also signed a new state law that allows the policies from private companies to cost 20% more than Citizen's rates. Florida House Bill 837, passed March 24, 2023, was intended to reduce the number and cost of insurance lawsuits in Florida. That issue was one of the reasons cited by insurance companies leaving Florida according to the Insurance Commissioner Michael Yaworsky. In August 2023 FOIR announced that ''Mainsail Insurance Company'' from Texas was approved to operate in Florida. They also disclosed that 280,000 of Citizen's policies were approved for assumption by several insurers by October 2023.


See also

*
Citizens Insurance Citizens Property Insurance Corporation (Citizens) was created in 2002 from the merger of two other entities to provide both windstorm coverage and general property insurance for home-owners who could not obtain insurance elsewhere. It was esta ...


References

{{Reflist


External links


Citizens Property Insurance Corporation Official website2012 CITIZENS STATUTE
Financial services companies established in 2002 Insurance companies based in Florida Government of Florida Special districts of Florida 1993 establishments in Florida Government-owned insurance companies of the United States