Over a Million Floridians Could Face Insurance Rate Hike as Citizens Insurance Board Approves Increase

TAMPA, Fla. - More than a million customers across Florida could soon see a significant increase in their insurance premiums. The Citizens Insurance Board of Governors has given preliminary approval to a proposed rate hike, marking a critical step towards implementing the new rates.

Details of the Proposed Rate Hike

The proposed rate hike will raise personal property insurance policies by an average of 14%. This increase is the largest average rate hike in the company's history and only the second time it has issued a double-digit increase. The hike is designed to bring the rates closer to actuarially sound levels, which reflect the actual risk and market conditions.

Reasons Behind the Increase

Insurance experts indicate that this may not be the last rate hike from Citizens Insurance, as the company aims to reduce its customer base to more manageable levels. "Citizens’ goal is fewer customers," said Mark Friedlander, Florida spokesman for the Insurance Information Institute. "They've been depopulating successfully, moving over 400,000 policies to private carriers since last October."

Legal Limits and Market Stability

The 14% rate hike is the maximum allowed by state law. "These are positive signs that we’re creating a more stable marketplace in Florida with increased competition," said Charlie Lydecker, a member of the Board of Governors. The increased competition is expected to encourage more private insurers to enter the market, which could eventually help stabilize and possibly reduce rates.

Background on Citizens Insurance

Citizens Insurance, the largest insurer in Florida with 1.2 million policies, was originally established as the "insurer of last resort" for homeowners unable to find private market insurance. However, as private insurers have canceled policies and raised rates, Citizens Insurance has become a more affordable option for many. The company covers a wide range of properties, including those at higher risk for natural disasters, which private insurers may avoid.

Actuarial Soundness and Market Trends

"They cannot charge what we refer to as actuarially sound rates. If they were a private insurer, they would have been charging much higher rates over the past several years based on market conditions and risk exposure," Friedlander explained. Actuarially sound rates are designed to cover the expected costs of claims, administrative expenses, and provide a reasonable profit margin, which has been challenging for Citizens due to legislative caps.

Interestingly, Friedlander noted that rate increases in the private market are currently running lower this year. "The private insurance market has become much healthier, allowing them to adjust their rates to more moderate levels," he said. This health is attributed to recent efforts to reform the state's insurance laws and reduce frivolous litigation, which has historically driven up costs.

Impact of Rate Hikes on Consumer Choice

Citizens Insurance is implementing these rate hikes to reach more actuarially sound levels. "If their rates are higher on average than the private market this year, that will be another incentive for consumers to choose private insurers over Citizens," Friedlander added. The strategy is to make private insurance more attractive compared to Citizens, thus reducing the number of policies under Citizens and mitigating the financial risk.

Seasonal Policy Influx

Citizens Insurance is expected to take on thousands of new customers weekly during hurricane season. The company announced that depopulation efforts would be on hold during this period to manage the influx effectively and ensure adequate coverage during high-risk times. Florida's hurricane season poses significant risk, and maintaining stable insurance coverage is critical for homeowners.

Future Outlook and Approval Process

Lydecker expressed optimism for the long-term vision of the company: "Our real dream is depopulation and reduced rates." The goal is to balance the insurance market by encouraging private insurers to absorb more of the risk, thereby reducing the burden on Citizens.

Citizens Insurance indicated that without the state-imposed cap, they would need to raise rates by 38% to match private market standards. "38% is the real data," Friedlander stated. "That's what they would be charging if they were a private market." This figure underscores the significant difference between the capped rates and what would be considered financially viable for a private insurer.

The Board of Governors has approved the proposed rate hike, but it still requires approval from the Florida Office of Insurance Regulation. The office may request amendments to the proposal before final approval, ensuring that the rate increases are justified and in line with state regulations.

Conclusion

As the proposed rate hike moves through the approval process, Floridians insured by Citizens Insurance should prepare for potential changes to their premiums. The company’s efforts to stabilize the market and reduce its customer base may lead to significant shifts in the insurance landscape in Florida. Homeowners are encouraged to review their policies and explore all available options, including private insurance carriers, to find the best coverage at the most competitive rates.