Customers of state-owned Citizens Property Insurance Corp., the risk you’ve been warned about for years could soon come true:
Chances are increasing that you will be soon be assessed up to 15% of your annual premium to help pay for shortfalls in Citizens’ claims-paying ability. It will happen if claims from one or more storms from the company’s largest policyholder account exceed $420 million this year.
Based on Citizens’ current policy count of about 1.4 million, a 15% assessment would cost each policyholder an average of $550. That’s in addition to their current premium. And South Florida policyholders would bear the brunt of the cost, regardless of where the storms hit. Forty-three percent of Citizens’ policies are in the tri-county region.
In meetings over the spring and summer, Citizens staff and board of governors talked about the near-certainty of a special assessment being levied against Citizens policyholders this year.
All that was needed, Chief Financial Officer Jennifer Montero said, was for the wind to blow.
“If the wind does blow or if we have a bunch of small storms that eat away at (the $420 million), there will be assessments early, early on,” Montero said on July 12.
Well, the wind blew last week in the form of Hurricane Idalia. The good news is Idalia struck the most underpopulated part of the state and will likely result in claims far below the $2.9 billion that Hurricane Ian cost Citizens last year. And while Idalia caused major storm surge damage up and down the Gulf Coast, most property insurance policies do not cover losses from flooding.
Only homeowners with the foresight to purchase flood insurance — just 1 in 4 in Florida— will be covered for storm surge damage.
Through Friday, about 1,000 Idalia claims have been filed by Citizens customers, Peltier said. The company won’t tally the dollar value of the claims until Tuesday, but he said, “At this point, our modeling suggests that Idalia will not trigger assessments in the personal lines account.”
The bad news is that Hurricane Ian in September 2022 chewed up the surplus in Citizens’ personal lines account after striking the Southwest Florida coast, leaving the threat of assessments in play for the rest of the year.
Although Ian caused its heaviest damage off the coast of Fort Myers, the storm moved northeast across the state and resulted in 51,198 claims from customers in Citizens’ personal lines account through the end of July, according to data from the company. By comparison, policyholders in the company’s smaller coastal account filed 16,301 claims.
Citizens started the 2022 hurricane season with a personal lines account surplus of $1.7 billion. Of $1.88 billion in Ian claims, $1.17 billion was spent from surplus.
That plus other claims left the personal lines account surplus at $420 million at the beginning of the current hurricane season. After that money is gone, through claims from victims of Idalia or subsequent storms this year, the “Citizens policyholder surplus” assessment will be levied.
The vast majority of Citizens policyholders — 1.1 million — are in the personal lines account. They are located throughout the state.
Most of the rest, 249,335, are in the company’s coastal account, which covers portions of 29 coastal counties, typically residential and commercial properties located 1,000 to 1,500 feet from the coast. In Broward, Palm Beach and Miami-Dade counties, the coastal account takes in all areas east of Interstate 95. All of Monroe County is in the coastal account.
Coastal account policyholders will also have to pay the assessment if the personal lines surplus disappears.
The first assessment will generate up to $770 million. If that gets used up, Citizens will seek up to $830 million more with an “emergency levy” against its customers.
If the combined total of $2.02 billion still isn’t enough, Citizens can claim up to $3.55 billion from the Florida Hurricane Catastrophe Fund and $394 million from a private reinsurance buy.
Montero said the company declined to purchase reinsurance to cover the $1.6 billion it stands to collect in assessments for several reasons, including “we’ve never bought below the CAT Fund.” Also, coverage at lower levels is expensive and limited this year as reinsurers wait for last year’s legislative reforms to reduce losses endured by Florida’s property insurance industry.
Citizens, which aims to return most of its 1.4 million policyholders to private sector companies, did not want to take reinsurance capacity away from those companies, Montero said at a May board of governors meeting.
“If we took capacity below the CAT Fund, we’d probably be accused of taking limited capacity that the domestic market has to have for them to get their (financial stability) rating and stay in business,” Montero said. “And we don’t have to have it, so we have to be mindful of that.”
Policyholders won’t be pressed to pay up immediately, or all at once, if assessments are levied, Peltier said.
The new charges would be added to the cost of policies for new customers, and to the renewal price of policies for existing customers.
The company could also set up the assessments to enable policyholders to repay it over a number of years, like it did to recover $1.4 billion in debt after the supercharged hurricane years of 2004-05. In 2007, Citizens imposed an emergency assessment against all property, auto, specialty and surplus lines policies that was collected over eight years.
Between 2007 and 2015, a typical Broward County resident insuring a $300,000 home, two cars and a boat paid more than $1,400 in special assessments to cover debt from the 2004-05 storms.
Whether or not Citizens levies assessments this year, the prospect of future assessments is less likely.
That’s because the company’s three accounts — personal lines, coastal and commercial lines — will be combined on Jan. 1 under terms of reforms enacted last year. Citizens’ entire surplus will also be combined, creating a buffer large enough for the company and the Florida Hurricane Catastrophe Fund to cover all claims in a given year without having to assess Citizens customers or policyholders throughout the state.
“If we can get through this year and combine accounts, that will lessen chances of assessments,” Tim Cerio, Citizens president and CEO, told members of the company’s Finance and Investment Committee on July 11. He added, “We all need to pray for a great year from a weather perspective.”
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at rhurtibise@sunsentinel.com.
