Millions of homeowners in Florida could see their already skyrocketing insurance costs rise even further. The council overseeing state-owned Citizens, Florida's largest home insurer, voted on March 29 to raise rates by 14%. Miami Herald.
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And the insurer is also warning that this year it may need to implement what industry experts are calling a "hurricane tax," a yet-to-be-determined fee levied on all property insurers in the state. All it takes for the levy to show up is another major costly storm, or even a series of smaller ones, according to a new Citizens report.
Hurricane Ian dealt a multibillion-dollar blow to citizens' reserves as hundreds of thousands of Floridians rushed to the insurer of last resort, sparking a record rise in policies. Citizens currently insures 1,2 million owners - up 50% in one year - many of these homes are in vulnerable coastal areas. The latest financial report warned that Hurricane Ian "significantly drained" Citizens' financial resources, leaving the company with just $4,9 billion. That's nearly $2 billion less than the last two hurricane seasons.
Gov. Ron DeSantis expressed concern about the financial health of the largest insurance company in Florida.
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On March 29, the civilian board of governors approved a request for a 14% rate, which is yet to be approved by the state. This is the highest rate increase the company has asked for since 2009, when the rate increased by 10%. Last year, the Citizens asked the state for an 11% increase, but were only approved for 6,4%. President Tim Serio said the rate hike was part of the insurer's mission this year to bring policies to the private market.
Hurricane tax
Citizens have been warned for years about the risk of statewide hurricane taxes, especially as the number of policies has skyrocketed. But this report is the first in years to show that this risk exists even with a relatively small storm, known in the industry as a storm, or hurricane, which has a 1 in 50% chance of occurring annually.
Previous reports have shown that it would take a much larger storm, such as 1 in 100 years or 1 in 250, to trigger any estimate. This report shows that if a 1-year storm hits this hurricane season, citizens could face a $50 billion budget shortfall after exhausting all of their options, including a $1,5 cash surplus .4,9 billion, insurance they purchased from other companies and the state hurricane fund.
A storm every 1 years could result in a deficit of about $100 billion, and a storm once every 2,8 years could leave citizens with $250 billion in losses.
Shahid Hamid, chair of finance at Florida International University, said the Citizens are "pretty solid" financially, but it's clear there are risks. “It all depends on whether there is a major hurricane this year. If we don't get it, we're fine. If we get one, especially several, the Citizens have three options. His first resort is to raise rates for his own policyholders to make up the difference, potentially up to 30%. Failing that, citizens can charge up to 2% on every home insurance policy in the state, even with private companies,” he said.
The last and most radical option is a tax on almost every insurance policy in the state of Florida, including renters, boat and car insurance. It is known in the industry as the “hurricane tax”, and it is thanks to it that citizens will never go bankrupt, like other insurance companies.
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The last time Floridians experienced this was after the infamous 2004 and 2005 hurricane seasons, when home insurance policies across the state were saddled with a 1% fee for eight years to cover citizens' losses. So for a $5000 policy, that would add $50 per year.
While the risk of a hurricane remains stable in any given year, the net dollar value of the facilities at risk has risen sharply over the past decade, Hamid said. In addition, the number of people in risky coastal areas is on the rise, and the increase in fraud claims over the past few years has led to higher legal costs for citizens and other insurance companies.
“Financial risk has grown,” Hamid said.
The number of insurers is growing
A big hurricane will be a blow to the government-backed insurance company, and that risk only grows as the number of policies increases. Several insurance companies have gone bankrupt or cut their policies in risky coastal areas over the past few years. There are currently 1,2 million Citizens insurers, up from 800 a year ago or 000 two years ago. The company estimates that it could have 550 million policies by the end of the year, surpassing the 000 record of 1,5 million.
In an ideal Citizens world, that number would hover around 450, according to Serio.
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Recent attempts to kick people out of the Citizens include requiring compulsory flood insurance (even for apartment dwellers or people outside flood zones) and other requirements before they are allowed to renew. If this quota is within 20% of the price they pay citizens, they are required to accept it. Another setting now allows Citizens to raise premiums for vacation homes and investments by up to 50% each year, while primary homes are capped at a 12% increase. These hikes in premium prices are expected to help Citizens catch up with the rest of the private insurance market, which charges much higher prices.
An analysis last year found that Citizens charges 44% less on average than some of the largest companies in the market.
“Citizens rates are artificially low. It throws off the private market and distorts competition,” Serio said. - This is unfair".
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