The state-backed Citizens Property Insurance Corp. has well over a million policies and continues to see steady growth. But it was never supposed to be like this.
After 1992’s Hurricane Andrew in South Florida, Citizens was intended to be the state’s “insurer of last resort,” a fallback for Floridians who couldn’t get home insurance from the private sector. Now it’s become the go-to insurer for an ever-growing number of Sunshine State homeowners.
In the past two years, private property insurers have dropped customers and raised rates because of financial troubles. Meantime, Citizens claimed a little over 589,000 policies around this time in 2021. Its policy count jumped to 851,006 a year later.
The News Service of Florida’s Dara Kam recently spoke with Citizens president and CEO Tim Cerio on City & State Florida’s “Deeper Dive with Dara” podcast, released earlier this week. What follows are five of the questions asked. Questions and answers have been edited for clarity and brevity:
Citizens was supposed to be the insurer of last resort … a safety net essentially for property owners who couldn't get insurance anywhere else. There are now about 1.3 million Citizens policies. There were around 900,000 about 10 years ago. Can you explain that demand?
The intent was that Citizens would serve as the insurer of last resort. We should not be the largest insurer in Florida. And we are now, and we have been that for a number of months. When the market is bad, Citizens grows. It sounds like an oversimplification, but it's absolutely true. When the market is healthy, we shrink … I know that there are very strong opinions on both sides, but I will tell you I believe that it has been litigation that has decimated the insurance industry.
… As you know, I'm a lawyer by training, and there are a lot of good lawyers out there who do a good job on the plaintiff's side and representing insurance. And there are insurance companies out there who don't get it right, or who don't operate in a manner they should. Let's put it that way. There are also some very unsavory lawyers out there who game the system. And there are just good and bad folks on both sides.
But I will tell you, if insurers could turn a profit, if (they) could make money in Florida, they would be here. And it has been very, very difficult. … When you think about 76% of the litigation in the country over property insurance occurring in Florida, even though we only have about 7-8% of the claims, that is a problem. … That meaningful major tort reform was able to get through the Florida Legislature and get to the governor's desk and be signed by the governor, I think that's very telling.
When you talk about major tort reform, one of the changes that the legislature approved has to do with the bad faith lawsuits. And another one eliminates … one-way attorney fees in lawsuits against insurers. Consumer advocates maintain that nobody's going to want to represent plaintiffs if … they can't get their claims settled under this change.
So, I don't want to say Florida was the only state, but was one of the handful of states that had a pure one-way attorney's fee statute. And what that means is, if there's litigation between an insurer and an insured and the insurer, the insurance company wins, they don't get their attorney's fees. You know, that’s fine. Most insurance companies have tremendous resources. But if the insured wins, they get all their attorney's fees.
And what you have found over maybe the last decade, I think in particular, is a lot of methods to game the system. So even … if an insurer wanted to settle, there was no incentive to settle the case because if the case (got) protracted, the (plaintiff’s) lawyers got their attorney's fees.
Again, I'm not saying this happens in every case, but you really saw the amounts that were paid out for claims skyrocketed, sometimes for attorney's fees, (in that) you would have a $2,000 loss and you would wind up paying $35,000 in attorney's fees. So that has been very unhealthy.
And I think a lot of insurers, including those who pulled out of Florida, would say that that was a real problem. … It was especially bad in Florida. There are a lot of other states where you do not have a one way attorney’s fee statute, and injured consumers can still obtain good counsel.
I had Fred Karlinsky on (the podcast last year) … he's an insurance guru, and he told me that Florida consumers have been underpaying premiums for a long time. And that we just have to kind of wrap our minds around (the fact) we haven't been paying enough for property insurance and we need to just get used to the fact that we're going to have to pay more.
Citizens’ rates … were frozen for many, many years, which distorted the market. Then a glide path was put in place where we fell behind the market. And as the insurer of last resort, if you look (at) most state insurers of last resort, they are near, if not the most expensive insurer. Again, it's to provide a vehicle for insurance for folks who could not otherwise obtain it. And instead, our rates are cheaper. And that's not fair.
Right now, I think we're about somewhere between 15% and 16% of the total market, which is scary. It's not fair to the 84% to 85% of other policyholders in Florida. … And if there is ever a problem, if our surplus is depleted, if we have a major storm or two and we have to do what's called emergency assessments, those are assessed not just against Citizens policyholders, but everyone in the private market. Nobody wants to pay more, but it's just a matter of stabilizing the market.
I believe you're seeking (approval) from the Office of Insurance Regulation (for) an average 14.2% rate hike … to be effective Nov. 1. Do you think that after that double-digit rate increase that will align Citizens’ premiums with what they should be?
I would be grateful if that is granted, but we still will not even be close. … I want to be careful with my figures here, but I think on average we will still be maybe 35% to 40% below market, below where we should be. So we're trying to narrow the gap. … In the last special session, the Legislature said that Citizens was to be not only actuarially sound, but to be non-competitive with the private market.
We are highly competitive with the private market and still will be, even if our rate increases are passed, because we will still be, again, vastly below where we should be as far as the rates we charge. I hope Citizens customers out there understand. I don't want you to have to pay more, but as the person who's in charge of trying to keep Citizens running … we have got to pursue rate increases.
What about no more coverage for second homes or (homes on) barrier islands?
That will not fly. There's a lot of hardcore ideas, right? They’re just not politically palatable. … A lot of times there are a lot of great ideas we come up with, but the question we keep coming back to is, OK, well, where do they go? There's nowhere else to go.