U.S.: Homeowners Face 14% Insurance Hike as Company Seeks Market Stability

Citizens Insurance’s Board of Governors has approved a 14% rate hike, potentially leading to hefty increases in insurance premiums for Florida residents. This increase, the greatest authorized by the state, is intended to stabilize Florida’s insurance market and decrease the financial strain on Citizens Insurance, the state’s insurer of last resort.Ron DeSantis, the state’s governor, has previously referred to the insurer as “insolvent”.

In recent years, Citizens has become the largest property insurer in Florida, accounting for 18% of the market. However, state officials are attempting to shift policies from Citizens to private insurers to reduce financial risks during hurricanes. Since October, more than 400,000 insurance have moved to the private market. “We’ve seen over 400,000 Citizens policies transition to the private market.” Why is this a positive thing? Number one, it eliminates risk exposure for citizens; second, it demonstrates that the private market is healthier,” noted Mark Friedlander of the Insurance Information Institute.

Friedlander stressed that the rate increase is critical to improving the competitiveness of Florida’s insurance market. “You’re buying insurance from Citizens at a discount. Many people may disagree, thinking, ‘I’m paying so much, what are you talking about?’ But you are purchasing Citizens Insurance at an artificially cheap premium.”

Laura Bongarzone, a West Palm Beach resident, has seen the impact of rising insurance costs personally, telling CBS12 News that her premiums increased from $2,800 in 2020 to $5987 this year.

For homeowners like Bongarzone, the anticipated rise presents a difficult situation. “You’re basically a captive. You may go anyplace; no one will write insurance now, and if I move somewhere else, it will cost even more,” she explained.

The planned rate hike, which requires approval from both the Board of Governors and the Office of Insurance Regulation, might go into effect on January 1, 2025. This would be the greatest average rate rise and only the second double-digit boost in Citizens Insurance’s history.

“These are very positive indications that we’re creating an environment where there’s a potentially more stable marketplace inside of the state of Florida, as well as more competition,” said Charlie Lydecker, chairman of Foundation Risk Partners and a member of the Board of Governors.

Citizens Insurance, which covers 1.2 million policyholders, was originally intended for homeowners who were unable to obtain insurance in the open market. As private insurers canceled coverage and upped rates, Citizens became a more inexpensive alternative. “They cannot charge what we refer to as actuarially sound rates, meaning if they were a private insurer, they would have been charging much higher rates over the past several years just based on market conditions, risk exposure,” according to Friedlander.

Despite the rate hikes, the private insurance sector has experienced lesser increases this year, reflecting better health. “The bottom line is, the private insurance market has gotten much healthier,” Friedlander told reporters. “That’s why they’re able to adjust their rates now to very moderate levels.”

The strength of new insurers joining the market has been called into doubt. According to the abstract of a Harvard/Columbia/Federal Reserve study, conventional insurers are leaving high-risk locations, while new lower-quality insurers come and fill the vacuum. “These new insurers service the riskiest areas, are less diversified, hold less capital, and 20% of them become insolvent.”

Citizens Insurance anticipates attracting thousands of new clients throughout the hurricane season, while depopulation activities will be paused during this time. “Our real dream is de-population and reduced rates,” Lydecker stated.

While the projected premium increase is less than half of what would be required without a cap, the Board of Governors expects the number of policies to fall below one million. The Florida Office of Insurance Regulation must still accept the increase, with the option of returning it for modifications and re-filing.

As the state works through these reforms, homeowners are left looking for viable insurance options in a volatile market setting.

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