Citizens customers won’t pay as much as feared
Customers of Citizens Property Insurance Corp. can rest easy, at least for another year. Your rates next year won’t go up as much as the company wanted.
Insurance regulators rejected efforts by state-owned Citizens to deter new customers by raising rates higher than previous rate-setting methods would have allowed.
As a result, new and renewing customers, a majority of whom are in Broward, Palm Beach and Miami-Dade counties, will see lower increases than proposed in January, and thousands will actually see their premiums reduced.
Insurance agent Dulce Suarez-Resnick, vice president at Acentria Insurance in Miami, welcomed the Office of Insurance Regulation’s order to reject Citizens’ proposed hikes.
“In this current market condition, we didn’t need that rate hike,” she said by email. “We should not be trying to find ways to keep people out.”
The order by state regulators reduces the 6.2% average rate increase sought for multi-peril homeowner policies, the most common type, to 3.2%. The average increase for homeowners wind-only policies was reduced from 7.0% to 5.1%. Rate increases for condominium owner policies were reduced from 7.8% to 4.8%. The new rates will take effect Aug. 1 for new and renewing policyholders.
While average increases by county were not released with the order, they will be closer to what the company proposed for single-family homeowners late last year: $182 in Palm Beach County, $99 more in Broward County and $26 more in Miami-Dade County.
Citizens was created to serve as an insurer of last resort for Florida property owners who cannot find a private-market company willing to insure them, or can only find private-market coverage at exorbitant rates. In recent years, insurers have raised rates by up to 40%, blaming increased claims costs and litigation. Many companies refuse to sell new policies in South Florida.
As a result, Citizens is growing by
about 5,000 policies a week and could reach 700,000 policies by the end of the year — up from 452,000 in 2018.
Citizens, the so-called insurer of last resort in Florida, last December unveiled a proposal to raise rates for its personal lines accounts by an average 3.6%, including an average 1.6% hike for its homeowners accounts.
Then in January, the company’s board of governors, led by newly appointed chairman Carlos Beruff, ordered the company’s actuaries to find strategies justifying steeper rate hikes. Beruff said he was concerned about the accelerating number of policies at Citizens and the increased vulnerability of all insurance consumers in the state who would be forced to pay surcharges if Citizens ran out of cash paying claims after a catastrophe.
So in January, the board approved new recommendations that increased the average rate increase to 7.2% and eliminated rate decreases for 40,096 customers.
In its order released Tuesday, the Office of Insurance Regulation ordered Citizens to increase rates by an average of 3.2%. The order rejected Citizens’ justifications for the larger rate hikes, including:
Citizens’ rationale for not reducing premiums for customers whose circumstances in other years justified reductions. Those rates should continue to be set by methodology used in prior years, regulators said.
A recommendation to subject new customers to rates that would be charged if Citizens were a private-market company rather than rates that increase no more than 10% each year as required by state law. Board members, along with Sen. Jeff Brandes, argued that state law allowed Citizens to charge new business rates that more accurately reflected the cost of their risk, but the regulators found that justification “insufficient.” When the 10% cap was initially recommended in 2009, there was no distinction between new and renewal rates, the order states.
Citizens’ decision to inflate rates using a “risk factor” calculation intended to reflect “the cost of catastrophic risk that Citizens is assuming. Regulators found the justification is “insufficient and should be removed from the rate determination.”
Ryan Papy, president of the Keyes Insurance agency in Palmetto Bay, said the reduced rate increase widens the price gap between Citizens and private market insurers and will compel more customers into Citizens. Ultimately, that’s not good, he said.
“We need the private market to be able to compete to have a healthy property insurance industry,” he said. “The current state of affairs is unhealthy. Very few, if any, private market carriers are writing new policies on properties more than 10 years old. A market with no options is no longer a market.”
Despite the rejections, an effort to dissuade new customers from switching to Citizens remains alive in the state Legislature. A bill facing the House Commerce Committee on Friday would enable consumers to buy Citizens insurance only if available private market insurance costs at least 20% more than Citizens. Under current law, the difference can be as low as 15%.
A Senate bill that passed its Appropriations Committee on Monday would remove the 10% cap on annual rate increases for residential policies sold after Jan. 1, 2022.
Efforts to reach Beruff for comment were unsuccessful.
Citizens spokesman Michael Peltier said by email: “Citizens presented a set of recommendations for 2021 rates that reflected efforts to make Citizens rates more competitive with private carriers and maintain its position as Florida’s insurer of last resort. As it does every year, the Office of Insurance Regulation reviewed those recommendations, made changes, and issued its final order following that review. We respect the decision.”