Citizens Insurance for all? Florida lawmaker says yes but insurance insiders say idea is too risky

What if state-owned Citizens Property Insurance Corp. became the go-to provider of windstorm coverage for all personal and commercial property owners in Florida who want it?

State Rep. Sheldon Roach, who lost his home in Hurricane Ian in September 2022, says it’s an idea worth exploring.

“My belief is that Florida eventually and inevitably is going to move into the direction of offering universal windstorm insurance,” Roach said in an interview this week.

The Lee County Republican has filed a bill for the upcoming Legislative session that would significantly change Citizens’ mission from the insurer of last resort to the state’s hurricane backstop.

If enacted, Citizens would no longer offer comprehensive coverage to Florida homeowners who cannot find affordable coverage in the private market, but instead would potentially free the private market to sell “bread and butter” comprehensive coverage. Roach says his plan would lead to insurance rates “dropping like a stone.”

The new plan, he says, would be modeled after the National Flood Insurance Program, administered by the federal government, and the California Earthquake Authority.

But using the two programs as models might not convince legislators to sign on to the idea.

California’s program was created after a 6.7-magnitude quake hit Southern California in 1994 and prompted companies insuring 93% of California homeowners to either drastically cut back on issuing new policies or stop issuing them altogether.

Separating earthquake risk from other perils convinced insurers to remain in the state, but now only about 10% of homeowners in the state purchase earthquake insurance.

Because the program is required to be self-sufficient, with no state funding, the program last year announced plans to cut coverage of personal property from $200,000 to $25,000 and eliminate the lowest deductibles for homes built before 1980 that have not been retrofitted or homes worth more than $1 million. Rates will also increase.

A program official recently told KQED-FM, a public radio station, that the changes were prompted by rising costs.

The National Flood Insurance Program, burdened by numerous flood disasters since Hurricane Katrina in 2005, is currently $20.5 billion in debt and paying $1.7 million per day in interest on that debt. A recent effort to bring premiums more in line with risk has resulted in heavy rate increases for properties in areas most vulnerable to flooding.

Unlike state-run insurance, the flood insurance program could be bailed out at any time by the federal government’s ability to print money.

Insurance insiders interviewed about Roach’s proposal voiced skepticism that it would work, and near certainty that the state Legislature would not go along with the idea of putting the state’s treasury and credit rating on the line.

Despite rising premiums in recent years, several insiders say that the private market system is working. That system is comprised of more than 100 private carriers who are responsible to secure reinsurance from private financiers each year to ensure they’ll be able to pay all claims in case of a catastrophic storm, they said.

California’s system and the National Flood Insurance Program were created to cover homeowners at times when no insurer would cover earthquake and flood risks, insurance consultant Lisa Miller said.

“If there’s a perception by some lawmakers that private insurance companies are not writing wind policies in the state, they are mistaken,” Miller said by email. “Florida has 7.5 million property insurance policies and private companies are writing homeowners insurance with wind coverage every day. Depending on the location and risk, it is expensive, and that’s because Florida is the most catastrophe-prone state in the country.”

Too costly, insurance insiders say

A state-run program would have to be financed with reinsurance or with state funding, the insiders said.

If the state had to cover losses equal to those sustained during the 2004-05 hurricanes, it would have had to pay $100 billion, adjusted for inflation, said Bruce Lucas, CEO and founder of Slide Insurance Corp. The state would then need to cover an additional $100 billion in potential losses the following year and every year thereafter, he said.

“This could bankrupt the State of Florida, and cause significant credit defaults and downgrades for the state’s current bonds,” Lucas said.

Florida would have to recover the costs by charging special assessments to all policyholders, which would make it more expensive than the current setup, he said.

Stacey Giulianti, chief legal officer at Florida Peninsula Insurance, noted that many recent insurance claims in Florida have been caused by weather events that were not hurricanes.

“Those storms remain on the risk profile of the private carriers, so moving catastrophe risk to the state will not significantly reduce rates,” he said.

To avoid pledging the state’s treasury, Citizens would have to “purchase an enormous amount of reinsurance,” Giulianti said.

“That type of market buying would have a negative ripple effect in the overall insurance market and would not help reduce primary rates,” he said. “In addition, there is a certain cost to taking windstorm risk on any portfolio, and it doesn’t make sense that the government could sell a product below the hard cost.”

Plus, he said, the idea flies in the face of the state’s goal to reduce, and not expand, the risk of special assessments that a growing Citizens poses for Florida insurance customers.

Roach, however, says the state should be able to build up a reserve during years without hurricanes that could be tapped when needed.

Too many insurers have collected premiums and “put them in their pocket” during years with no hurricanes, then folded their tents after a major one hits, he said.

When an insurer goes bankrupt, its existing debts are transferred to the Florida Insurance Guaranty Association, which recoups those costs with special assessments that are passed to customers by remaining insurers.

Similar ideas have fallen flat

Ideas similar to Roach’s have been proposed over the past 20 years, but have never been fully explored. Some blame the powerful insurance lobby, which could lose millions in revenue generated during years that the state has no hurricanes.

In the late 2000s, a group of St. Petersburg businessmen proposed combining Citizens and the Florida Hurricane Catastrophe Fund, which provides low-level reinsurance to Florida carriers, to create a company that would only provide hurricane insurance.

Premiums collected during hurricane-free years would be saved for use when windstorms eventually hit. The group predicted that the entity would accrue a surplus of $82 million over 10 years.

Writing in the Tampa Bay Times, retired insurance regulator Thomas Cook proposed a similar plan, among others, in December 2022.

Roach says he has talked to counterparts in the Senate about his bill, but none have agreed to sponsor a version of it in that chamber.

While he’s not optimistic his bill will advance this year, he’s convinced that his fellow lawmakers will eventually come around to the idea that windstorms are “incalculable” and “uninsurable” under the present system.

“Do I have all the answers? No,” he said. “Filing the bill is the starting point. I think we need to start having these discussions and say what are we going to do when the market collapses.”

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.