Citizens Property Insurance Corp., the state's last-resort insurer, has obtained roughly one-third of the backup coverage it sought, according to spokesman Michael Peltier on Tuesday.
Due to reinsurance companies withdrawing from Florida's volatile insurance climate, the state's insurance market is widely regarded as critical. Reinsurers are large companies that provide coverage to primary insurers when claims exceed their ability to pay.
Citizens has been absorbing stranded policyholders at a rate of about 6,000 per week as multiple insurers cancel policies in Florida, according to Peltier. The corporation's board of governors authorized spending up to $400 million in mid-May to purchase $4.25 billion in reinsurance coverage, nearly doubling what it spent the previous year.
Peltier stated that Citizens was looking for $3.44 billion in new coverage to supplement what it already had.
"We have purchased $1.25 billion so far," he said via text, adding that the board hoped to complete its purchases last week. The board of governors was warned about this possibility in mid-May.
Citizens' largest pool of policies – its personal lines on inland properties – is only 14 percent covered so far, according to Peltier, with $309 million of the $2.19 billion in coverage secured. The corporation's smaller line of coastal accounts is 76 percent covered, with reinsurance coverage totaling $941 million.
If no other reinsurance coverage can be found at a reasonable cost, Citizens will be left with insufficient backup insurance during this hurricane season (which runs through November 30).
According to Paul Handerhan, president of the Florida-based Federal Association for Insurance Reform, Citizens' inability to secure adequate reinsurance coverage comes as no surprise, and several private insurance companies are also falling short, putting them at risk of having their credit ratings downgraded, forcing them out of business in Florida and driving even more policyholders to Citizens.
"Citizens is exposed to $300 billion" (potential claims). If we have a major storm, the $6 billion in claims-paying capacity they have could quickly run out," Handerhan said.
If the storm season turns out to be as active as meteorologists predict, resulting in large property losses, Citizens may be forced to raise rates on its customers by up to 11 percent.
Southern Fidelity Insurance is the latest to announce that it had lost its good credit rating and was attempting to offload approximately 70,000 policies to other Florida-based companies. Policyholders who cannot be placed elsewhere may apply for Citizens coverage, which has grown to nearly 900,000 policies. According to corporate records, its volume in May of last year was 609,805 policies, and it will be 463,247 in 2020.
Lexington Insurance Co., which has approximately 8,000 policies in Florida, previously announced its intention to exit the market in August, according to Florida Office of Insurance Regulation records.
The Florida Legislature met in special session in late May to implement changes aimed at stabilizing the state's ailing insurance industry, but analysts and bill sponsors say they won't be effective for another 12 to 18 months.