Florida lawmakers debate Citizens expansion, could drive up reinsurance needs

Among the property insurance related topics up for debate in the Florida legislative session are measures that could trigger another growth surge for insurer of last resort Citizens Property Insurance Corporation, moves that would likely see it needing to grow its reinsurance and risk transfer.

Over the last few years, the goal of legislators when it comes to Florida Citizens has been to create an environment where it can sustainably shrink and property insurance policies therefore move back to the private market.

But Citizens had grown substantially despite these efforts, only shrinking somewhat in the second-half of 2023 thanks to its depopulation program picking up speed again.

As of January 12th 2024, Florida Citizens counted 1,232,163 policies in-force, which is down from a 1.4 million policy high in September, but still up on the end of 2022 figure of about 1.15 million.

There is evidence that property insurance market conditions are improving in Florida, as data suggests that lawsuits are slowing somewhat.

While there are a raft of property insurance related measures to be debated during the current legislative session in Florida, given the still challenging market for consumers and homeowners, it seems lawmakers believe that Citizens may need to grow again, before it can shrink more sustainably.

As a result, one bill, S.B. 1106, passed through the Florida Senate Banking and Insurance Committee with no opposition.

Senate Bill 1106 now passes to the House and it looks to raise the coverage cap on properties that Citizens can cover to $1 million state-wide, up from $750,000.

The cap was already at $1 million in Miami-Dade County and Monroe County, which are the southernmost areas of the Florida peninsula and Keys, so perhaps considered especially hurricane exposed and with an insurance market that has been particularly dysfunctional.

There are two other bills in early progress that look to change the status-quo in the south as well, with SB 604 and HB 565 calling for the Citizens coverage limit in Miami-Dade and Monroe counties to increase from $1 million to $1.5 million.

Lawmakers feel that homeowners with properties that have replacement values above $700,000 across Florida and $1 million in the southern tip of the state, have been forced into surplus lines territory, resulting in more costly insurance, or a lack of choice and options.

These higher-value properties would not be subject to the rates glide path, that restricts rate increases, so the hope is they would be more quickly competed back out of Citizens, as the insurance market continues to improve, it seems.

Bill 1106 would apply a surcharge of $2,500 to these higher-value homes, to reduce the chances of Citizens rates competing to strongly with private carriers. But it would represent the opening up of Citizens to higher-value policies anyway, which ultimately suggests at least some more risk could flow in to the insurer of last resort.

The general feeling of lawmakers seems to be that while shrinking Citizens remains the long-term goal, its role in Florida’s property insurance market, as the last resort provider, may have to increase first, as the marketplace continues to move back towards a more balanced, functional and even situation.

This is in response to the exiting from Florida of a number of players, as well as the reduced appetites of other insurers. The newer breed of Florida start-ups that are aggressively growing don’t appear able to absorb the demand alone, yet.

Any increase to the coverage caps, as well as to the number of policies eligible to be written by Citizens, has the potential to grow the portfolio and as a result exposure, driving a requirement for more reinsurance and risk transfer.

Florida Citizens secured just over $5.38 billion of reinsurance protection, from traditional and ILS markets, for 2023.

As we reported, Citizens Property Insurance Corporation could increase its purchase of reinsurance and catastrophe bond backed risk transfer in 2024, with a new layer structure following the merging of its accounts that suggests as much as $5.5 billion could be purchased this year.

If lawmakers pass legislation that allows more policies to flow in, the amount of reinsurance required could grow and the use of catastrophe bonds by Citizens grow with it.

All of the insurance bills under discussion right now in Florida need to pass their committees, as 1106 has, but then also the full Florida Senate, as well as the House of Representatives. The session ends on March 8th, so bills need to navigate these debates and be passed by then, although they won’t get signed into law until August.

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