Owners of Citizens-insured homes with replacement values in the $500,000 to $600,000 range received notices of non-renewal just a few years ago, forcing them to seek far-more expensive coverage in the unregulated surplus lines market.
According to the notices, rising construction and labor costs pushed their replacement values above a $700,000 eligibility cap in place in Broward, Palm Beach, and every other Florida county except two.
Due to exemptions approved by the Florida Office of Insurance Regulation in 2015, homeowners in Miami-Dade and Monroe, the state's two southernmost counties, do not have to worry about becoming ineligible for Citizens unless their replacement values exceed $1 million. The exemptions were granted after a study determined that the two counties — long thought to be the most vulnerable to hurricanes' destructive forces — lacked competitive insurance options and should have a higher eligibility cap.
However, a growing number of political leaders, insurance agents, and homeowners believe that the lack of options has since become the status quo across the state. They argue that the separate eligibility thresholds are unfair to homeowners throughout the state whose replacement values are rising due to economic forces beyond their control.
They want the Office of Insurance Regulation to raise the eligibility cap in Broward and other counties where recent bankruptcies, skyrocketing premiums, and private-sector company decisions to stop writing new business have left homeowners with few options.
Homeowners whose properties are ineligible for Citizens are typically forced to seek coverage from surplus lines carriers, which may charge higher rates, are not regulated by the state, and are not required to provide the same coverages as so-called domestic insurers such as Fort Lauderdale-based Universal Property and Casualty or Deerfield Beach-based People's Trust.
"We're right next to Miami-Dade, and you're telling me the housing market is vastly different?" Rep. Robin Bartleman represents Weston, Southwest Ranches, and Pembroke Pines, just north of Miramar and the Miami-Dade County line. "I'm not sure how they justify treating Miami-Dade differently than Broward."
On May 9, Bartleman wrote to Insurance Commissioner David Altmaier, requesting that "your office determine whether there is a reasonable degree of competition for homeowner's insurance rates in Broward and other counties such that the $1 million maximum dwelling replacement cost for eligibility for Citizens coverage should apply there" through a study or otherwise.
Bartleman and Rep. Chip LaMarca, a Republican from Lighthouse Point, co-sponsored legislation requiring a new competitiveness study during the May special legislative session convened to prevent the collapse of Florida's private-market insurance industry. The bill was not passed by the legislature.
Home values in Broward and Palm Beach counties are increasing.
Insurers calculate replacement values, or how much it would cost to rebuild a destroyed home or condo, using models or software that account for inflation and other factors.
The replacement value of a home differs from its market value, which is also referred to as "just value" in property appraisers' records.
However, examining the increase in the market value of properties within a county can provide insight into what is happening with replacement values.
Between 2021 and 2022, the number of single-family homes and condos with market values greater than $700,000 increased 46 percent in Broward County, from 32,003 to 46,815. Palm Beach County saw a 65 percent increase, rising from 40,606 in 2021 to 67,112 in 2022. In comparison, the numbers in each county increased by 26 percent over the three-year period ending in 2021.
A Citizens spokesman stated that the company was unable to calculate the number of policies that were not renewed in the previous year due to exceeding the eligibility cap in time for the publication of this report.
Jim Carroll, a retired Fort Lauderdale resident, had been paying Citizens $5,000 to $6,000 per year to insure his home on a canal near the Intracoastal Waterway. After Citizens raised his home's replacement value above $700,000 this year, he was forced to pay nearly twice as much for Lloyds of London coverage, he explained in an interview.
He claims that not long ago, only the wealthy could afford a $1 million home.
This has changed.
He claims that houses in his neighborhood that sold for $500,000 to $600,000 a decade ago are now worth $1 million or more.
Nic Arfaras lives in the Coral Ridge neighborhood of Fort Laudedale. Citizens refused to renew his policy because the replacement value of his home had increased by more than $700,000, so his insurance cost increased from $7,000 to $31,000. He found a company willing to cover the home for $14,000 a year after repairing his roof and making other necessary upgrades, he said.
He said he'd rather stay with Citizens. He can't go without insurance because he still has a mortgage, and lenders require full coverage. "You're screwed if you have a mortgage." "You have no choice," he explained.
Miami-Dade and Monroe counties are exempt from the $700,000 cap.
There was no eligibility threshold when Citizens was first established in August 2002. However, critics quickly discovered that the company insured over 5,000 homes worth more than $1 million, the majority of which were owned by wealthy people who could easily afford private-market coverage. This put nearly all insurance customers in Florida at risk of assessments to fund mansion rebuilding if Citizens was unable to pay all claims following a disaster.
Citizens' alarmingly high policy count, which peaked at nearly 1.5 million in 2012, was on the minds of lawmakers and Citizens leaders in 2013. Reducing the eligibility cap was seen as a way to shed customers better served by the private market, as well as incentivizing private companies to take over Citizens' most profitable accounts.
The legislature and governor passed legislation establishing a $1 million statewide eligibility cap, as well as a step-down provision that requires the cap to be reduced by $100,000 each year until it reaches $700,000 in 2017. The law, however, gave the Office of Insurance Regulation the authority to keep the cap at $1 million in counties where it determined there was a "reasonable degree of competition."
The office conducted a study in 2014 that compared the percentage of premium paid to Citizens in each county for homes with replacement values ranging from $900,000 to $1 million. Citizens received 96.8 percent of the vote in Monroe. It was 62.5 percent in Miami-Dade County. No other county had a rate higher than 47.2 percent.
The Herfindahl-Hirschman Index was also used by the office, which it described as a widely accepted measure of market competition. It also demonstrated that Miami-Dade and Monroe counties were highly concentrated markets.
Alan Edwards, owner of Davie-based Alan Edwards Insurance Agency, said one of his clients lost Citizens coverage after the company raised the replacement value of his 3,800-square-foot Broward County home from $621,000 in 2021 to $712,000 this year — a $91,000 increase. According to Edwards, the client, who owns a small plumbing business, had to pay more money for lower levels of coverage from a surplus lines carrier.
"Are these people really, really wealthy?" According to Edwards. "You don't want to subsidize the very wealthy [with government-backed insurance], but you also don't want to harm the upper middle class."
Agents want a study on eligibility caps.
Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents, says his organization's board of directors supports the Office of Insurance Regulation's new study. Agents in the association have reported sharp drops in the number of private market insurance companies willing to cover their clients, even in Panhandle and other northern Florida communities where insurers used to compete.
"The majority of our agents have never seen anything like this," Ulrich said. He also stated that FAIA "would be happy" to assist the Office of Insurance Regulation in studying competitiveness across the state by providing the names and phone numbers of insurers that are still writing policies in counties where its agents do business.
While the surplus lines market used to be a reliable source of coverage for clients pushed out of Citizens, Lexington Insurance Co.'s decision to discontinue its home insurance division last spring has left high-end homeowners who used to rely on Citizens with fewer options, just like owners of lower-priced homes, Ulrich said.
Late Thursday night, hours after the South Florida Sun Sentinel asked an Office of Insurance Regulation spokeswoman about the status of Bartleman's request to Altmaier, Bartleman and her legislative assistant received an email from Altmaier's chief of staff, Alexis Bakofsky.
Bakofsky wrote in an email, "We have been diligently working on" Bartleman's request and hope to provide you with an update soon. "This request requires a thorough review from OIR, which takes time," she added.
The email was unclear about whether the office agreed to conduct the study, according to Bartleman, who later added, "I don't know what it means."
The office did not immediately respond to questions about Bartleman's request from the Sun Sentinel.
Citizens 'do not want' policies
Nonetheless, any proposal that would make more homeowners eligible for Citizens would face opposition from lawmakers concerned about the company's continued policy expansion.
Following a drop to 419,000 policies in 2019, the company increased to 938,437 by July 1, 2022, and has been growing at a rate of about 9,000 per week over the last four weeks as more companies dissolve, stop writing new policies, or cancel or decline to renew existing policies.
Sen. Jeff Brandes, a Republican from the Tampa Bay area who has repeatedly criticized an annual rate cap on Citizens policies enacted in 2009 by then-Gov. Charlie Crist, said expanding the cap beyond Miami-Dade and Monroe counties would harm the remaining private insurance market by siphoning away more customers.
Citizens rates are 50 percent lower in some areas than private company rates because, unlike private insurers, Citizens is not required to set rates based on risk, according to Brandes. Prior to the rate cap, state law required Citizens' rates to be competitive with the state's top private market insurers, he explained.
Raising the eligibility cap "could potentially expose Citizens to an additional 150,000 policies they don't want that are pulled out of the private market."
Brandes, whose senate term expires this year, said he'd rather see the eligibility cap reduced to $700,000 in Miami-Dade and Monroe counties rather than raised across the board.
Or he'd support raising it to $1 million across the board, but only if Citizens is required to charge risk-based — or "actuarially sound" — rates for homes worth more than $700,000.
Otherwise, he said, "it's like putting on a tourniquet while the patient bleeds out."