Florida’s residual market insurer, or insurer of last resort, Citizens Property Insurance Corporation, could get back to record levels of exposure and policies under management, if the “extreme dysfunction” of Florida’s property insurance market persists and the private market’s appetite to take on risk there remains limited.
This is according to ALIRT Insurance Research, whose Principal David Paul writes in a paper that residual property insurance markets are facing a range of problems at this time.
Paul’s paper discusses Florida, a state whose insurance challenges have been well-documented, California, a state facing a wake-up call on the back of recent wildfire loss years and its exposure to climate related events, Louisiana, another coastal property insurance market that has faced its challenges, not least from recent hurricane seasons, and Texas, which is actually the state with the lowest residual market penetration and the healthiest private market, according to ALIRT.
But Florida remains the most-challenged example of a property insurance market that has residual support from an entity designed to operate as the insurer of last resort within the state.
As we reported recently, Florida’s Citizens Property Insurance Corporation (CPIC) recently surpassed more than 1 million policies again, the first time it has reached that level of portfolio exposure, in terms of policy count, since 2013.
In his report, Paul from ALIRT Insurance Research suggests this growth is likely to continue, with the potential for Florida Citizens to be setting new records for policy count and size in future.
Citizens in Florida is already the largest of the state residual markets in the United States, and given the troubles the state has faced in property insurance terms lately, it’s no surprise Citizens is growing.
While Citizens has been very large before, ALIRT highlights one difference today, the lack of appetite from the private insurance and reinsurance market in taking on more Florida wind exposed risk.
“The important difference today is that there are very few insurers (new or existing) that are interested in entering this troubled market,” Paul writes.
Continuing to explain that, “This contrasts sharply with the experience after 2004, when 47 new Florida- dedicated homeowners insurers were established over the following decade.”
If nothing changes in Florida, Paul of ALIRT is expecting Citizens growth will continue.
New evidence as to just how challenged Florida is emerged today, with United (UPC) announcing its main personal lines carrier is set to go into run-off, which had been the only carrier viable for the Citizens guarantee arrangement so far and suggesting that may be another initiative that fails to have much of a dramatic effect on the property insurance market in the state.
Paul concludes that, “In the absence of more extensive market reforms, CPIC could easily see policy counts/insured exposures that surpass the highs of 2011 as insurers and reinsurers continue to vote with their feet.”
And sums up that Florida is, “An insurance property market in an advanced state of dysfunction, where Citizen’s is a leading provider of homeowners insurance, national group appetite is quite low, and a once sizeable cohort of smaller dedicated homeowners carriers is dwindling due to insolvencies and market exits.”
Reinsurance pricing could be a significant impediment to Florida Citizens being able to add more capital protection as it grows too.
At the recent renewals, the residual insurer could only secure a smaller reinsurance program than it had been targeting, as pricing was deemed too high.
As it grows further, the price of reinsurance may not be coming down very fast, without some meaningful legislative reforms in Florida, meaning a larger Florida Citizens may find the next renewals just as challenging.