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Citizens' continued growth a sign of trouble in Fla. P&C market

Citizens Property Insurance Corp.'s burden of insuring Florida homeowners is increasing, an indication that the market is in significant trouble, industry observers say.

An S&P Global Market Intelligence analysis revealed that Citizens, the Sunshine State's insurer of last resort, saw its market share rise to 8.2% in 2020 from 6.7% the previous year. It was the first increase in that figure since 2011, when Citizens' market share stood at 27.0%.

Citizens' direct written premiums for Florida homeowners also rose in 2020 to $750 million, a 44% jump from $520.3 million in 2019. Allied lines direct premiums increased 21% to $408.2 million from $337.2 million in 2019.

The number of Citizens' policies-in-force continues to rise as well, climbing by more than 100,000 year over year to 542,739 in 2020. The company projects that total to rise to 696,122 by the end of 2021.

Barry Gilway, Citizens' president and CEO, during a March 15 public rate hearing said the company's competitive position in the market has caused that growth. Citizens' homeowners policies prices are lower than the average private market rate "91% of the time," he said, adding that its rates are "substantially lower" than its competitors in some regions.

Gilway said the marketplace in Florida is "shutting down," and some companies are not writing any new business across the state. Private companies in the market "are not profitable, have not been profitable and, frankly, some of them are having to pay high rates of return just to get the capital in order to continue writing the level of business they are writing today," he said.

"The capacity in the marketplace has shrunk to the point where, unfortunately, Citizens is becoming not the market of last resort, but, in many cases, the market of first resort, and that was never intended for a residual market mechanism," Gilway added.

One factor causing the market exodus has been underwriters trying to maintain their Financial Stability Ratings issued by Demotech, which provides FSRs for almost two-thirds of the carriers writing policies in Florida. Recommendations to insurers in a recent report from the agency included reevaluating their business models or plans to return to profitability, re-underwriting their current books of business and, "to the extent permitted by law," canceling or nonrenewing policies that are "outliers as regards their incremental cost of reinsurance."

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'Dysfunctional' market

Tort reform to reduce excessive litigation aimed at insurers was highest on Demotech's list of recommendations, stating it was essential "in order to address an operating environment tilted toward plaintiff attorneys." The rating agency further described the Florida property insurance market as "dysfunctional."

Risk consultant Guy Fraker during a meeting with Florida legislators soon after the publication of his report on the state's property and casualty industry also emphasized the need for tort reform.

"I told them that hurricanes were no longer the main threat to the economy in Florida, nor were they the biggest threat to insurers and their investors, and they were [surprised]," Fraker said in an interview. "I said it's your litigation occurrence, a litigation hurricane."

The state legislature's proposed responses to that threat are Senate Bill 76 and House Bill 305, both of which were introduced in January. The former was passed on April 7, but the latter remains pending in the lower chamber.

The bills include proposals to reduce the time allowed for an insured to file a property insurance claim from three years to two. The Senate measure has provisions that address how attorney's fees are determined and allow insurers to write policies for roof coverage of actual cash values for roofs older than 10 years. The House bill includes new restrictions on submission of claims from contractors and public adjusters and changes eligibility requirements for Citizens policies.

Michael Peltier, Citizens' media relations manager, said passage of the bills would provide some signifcant relief and help bring some stability to the market.

"I think we have people's attention," Peltier said in an interview.

Sen. Jeff Brandes, a co-sponsor of SB76, is hopeful his colleagues are paying attention.

"Oftentimes I find lawmakers will lean towards apathy until we reach a crisis level because they ... aren't actively looking at it like some of us are in the legislature," Brandes said in an interview.

Brandes said getting reform measures passed is a challenge because the trial bar is very strong in the legislature.

"They have made strategic investments, not only in campaign contributions, but they've made strategic investments in actually having their members run for the legislature," Brandes said "So, it's an extremely challenging environment in getting this type of legislation through the process."