Citizens Property Insurance Corporation
| Company type | Not-for-profit insurer of last resort |
|---|---|
| Industry | Insurance |
| Founded | 2002 |
| Headquarters | Tallahassee , United States |
Area served | Florida |
Key people | Barry Gilway (President and CEO) |
| Products | Windstorm and general property insurance |
Citizens Property Insurance Corporation (commonly known as Citizens) was formed in 2002 by consolidating two separate organizations to offer windstorm and general property insurance to homeowners who could not obtain coverage through traditional means. Established by the Florida Legislature under Chapter 627.351(6) of the Florida Statutes as a not-for-profit insurer of last resort, its headquarters are located in Tallahassee, Florida. It rapidly grew to become the largest insurer within the state.[1] Citizens operates independently from Louisiana's similarly named entity and is unaffiliated with for-profit subsidiaries under the Hanover Insurance Group umbrella.
Catastrophe
The devastation caused by Hurricane Andrew in 1992 resulted in $26.5 billion in damages and severely drained the financial reserves of 30 insurers active in Florida at that time. Eleven companies went bankrupt, while others stopped issuing or renewing property insurance policies. The insurers that remained increased premiums and deductibles and restricted coverage for high-risk properties. This left nearly one million coastal homeowners without insurance protection, which led the Florida Legislature to create the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA) and the Florida Windstorm Underwriting Association (FWUA) as last-resort insurers.[2] Additionally, the state introduced the Florida Hurricane Catastrophe Fund, financed through assessments on all property insurance policies, to aid both policyholders and insurance companies.[3]
Post Andrew
From 1992 until 2003, hurricane activity remained relatively moderate, with no more than one significant hurricane per year except in 1998 when two occurred. During this interval, new insurers entered the market and existing companies resumed underwriting policies. By 1999, Florida Insurance Commissioner Bill Nelson observed that FRPCJUA and FWUA were nearing the point where most of their combined 711,000 policies could be transitioned to private insurers. In 2002, the Florida Legislature combined the Florida Residential Property and Casualty Joint Underwriting Association (FRPCJUA) with the Florida Windstorm Underwriting Association (FWUA), resulting in the establishment of Citizens Property Insurance Corporation (Citizens). The corporation’s mission is to provide efficient insurance coverage to homeowners residing in high-risk zones or those unable to secure policies within the private sector.
High activity
The year 2004 saw four major storms impact Florida, inflicting damages exceeding $57 billion. The subsequent year experienced five major storms, including Katrina, which remains the most expensive Atlantic hurricane on record. A surge in hurricane-related and sinkhole claims prompted numerous insurers to withdraw from Florida's market. Consequently, Citizens evolved from being merely an insurer of last resort to often becoming the sole available option for many residents. By 2005, Florida faced nearly $5 billion in outstanding liabilities recoverable via assessments on insurance policies. The affordability and accessibility of insurance became pivotal subjects during Florida's 2006 electoral campaigns. Throughout 2006, Citizens maintained premium rates at the highest levels sanctioned by the Florida Office of Insurance Regulation to avoid competing with private insurers. Insurance agents were prohibited from issuing Citizens policies if a private insurer was willing to accept the risk. When a qualified private insurer agreed to assume a portfolio of policies, Citizens transferred those policies accordingly and terminated its coverage without offering customers any recourse.
Legislation
On June 11, 2007, Governor Charlie Crist enacted Florida Senate Bill 2498, commonly referred to as the Glitch Bill. This legislation enabled agents to issue Citizens policies when a private insurer's comparable premium exceeded Citizens' rate by 15%, a reduction from the previous 25% threshold. Additionally, policyholders could remain with Citizens if they were informed that their coverage had been transferred to a private insurer.
Following 2010, eight international insurance companies, including State Farm, either entered or reentered the Florida insurance market. Despite a 10% decrease in reinsurance costs during 2010 and projections for further reductions in 2011, consumer insurance premiums remained stable.
Post-recession
In 2010, State Farm and Renaissance collaborated to establish DaVinci Reinsurance Ltd. in Bermuda, providing coverage for more than 3.5 million homes in Florida. That same year, Japan-based Tokio Millennium Re Ltd. gained approval as a Florida reinsurer. By 2011, Citizens possessed $11.3 billion in liquid assets and investments while serving approximately 1.3 million policyholders.
The Florida Council of 100’s 2010 publication, Into the Storm: Framing Florida's Looming Property Insurance Crisis, highlighted Citizens’ insufficient capitalization and the use of rates lacking actuarial justification. The report observed that lower-risk policyholders were effectively subsidizing higher-risk ones and recommended implementing risk-based pricing that considers factors such as geographic location, building age, and construction materials. In response, Florida House Bill 1495 (2009) authorized Citizens to incrementally increase rates over five years to achieve actuarial soundness, with the goal of transferring risk exposure from taxpayers to private insurers.
In early 2012, Governor Rick Scott disclosed that Citizens faced $504.8 billion in risk exposure but maintained only $6.1 billion in cash reserves. Fact-checking clarified that claims from a catastrophic event akin to a "century storm" would not exceed $21 billion. According to Citizens’ internal data, the organization had a claims-paying capacity of $19.5 billion, indicating a shortfall of $1.5 billion and prompting initiatives aimed at risk reduction.
On June 18, 2012, Barry Gilway assumed the role of president and CEO of Citizens, succeeding Tom Grady. With over four decades of experience in insurance and a track record for organizational turnarounds, Gilway focused on decreasing the number of policies held by Citizens. During 2012, Citizens encouraged approximately 174,000 out of its nearly 1.4 million policyholders to switch to one of five private insurers; around 25,000 chose to remain with Citizens. Although these insurers were deemed financially stable by the state regulators, concerns persisted among consumers regarding premium costs and service quality when deciding whether to accept transfers within a prescribed 30-day timeframe.
Senator Jeff Brandes introduced Senate Bill 724 on February 8, 2013, aiming to reform Florida’s property insurance statutes and prevent the implementation of new "hurricane taxes" after major storm events. The bill encountered resistance from many Citizens policyholders due to fears of premium increases; a comparable measure had failed in 2012. Former US Representative Tom Feeney criticized the ongoing reliance on subsidies from homeowners and other groups supporting Citizens policies. Ultimately, the bill did not progress beyond the Senate Banking and Insurance Committee prior to the legislature’s adjournment in May 2013.
Takeout policies
To motivate private insurers to assume homeowners policies managed by Citizens (known as takeout policies), the Florida Office of Insurance Regulation (FOIR) was empowered to provide financial incentives tied to the volume of policies transferred. In May 2013, a proposal received approval from three out of eight members on the Citizens Board, offering Heritage Property and Casualty Insurance—a company established in 2012—a payment of $52 million to acquire 60,000 policies, equating to approximately $867 per policy. While Florida CFO Jeff Atwater pointed out that Heritage lacked sufficient financial backing without this inducement, Citizens President Barry Gilway described Heritage as "one of the most well-capitalized" insurers in Florida. During the negotiation phase, Heritage contributed $110,000 to Governor Scott's re-election campaign; officials denied any connection between this donation and the transaction. Critics labeled the agreement as "corporate welfare for a politically connected startup." Former CFO Alex Sink expressed concerns regarding Florida statutes limiting incentives to $100 per policy and questioned Heritage’s approach to reinsurance risk transfer.
Newly established Florida insurers must obtain FOIR approval for their business strategies and financial statements. Yet, between 2007 and 2011, six out of eighteen companies licensed to take on takeout policies failed despite no significant hurricane events, resulting in a $400 million burden on taxpayers. Despite these setbacks, by early 2014, six insurers had received authorization to transfer up to 151,000 policies from Citizens. Specifically, First Community Insurance Co. was permitted to acquire 51,249 policies; Safepoint Insurance Co., 40,000; Elements Property Insurance Co. and Heritage Property Casualty Insurance Co., 20,000 each; and both Southern Fidelity Insurance Co. and Southern Fidelity Property & Casualty were approved for 10,000 each. In 2014 alone, private carriers assumed responsibility for more than 312,000 policies previously held by Citizens. Citizens President Gilway set a goal to reduce the organization’s portfolio to roughly 800,000 policies.
By April 2014, the total number of Citizens’ policies fell below one million to approximately 940,000, while cash reserves reached an unprecedented high of $7.6 billion.
Model change
Following the exit of major carriers like Allstate and State Farm after 2005, smaller local insurers expanded their market presence. These new entrants adopted a different model from traditional insurers by allocating up to half of their premium income toward reinsurance purchased from offshore companies, rather than accumulating substantial cash reserves. Over a seven-year period without a major hurricane in Florida, these companies saw increased profits; however, many redirected capital into affiliated ventures instead of maintaining adequate reserves. Historically, insurance rates factored in reserve funding alongside reasonable profits after expenses. The OIR advises that insurers maintain reserves and reinsurance sufficient to cover losses from a once-in-100-year storm event; nevertheless, numerous firms underinvested in reinsurance coverage, leading to state takeovers when claims exceeded available protection. Owners faced no penalties for these underwriting practices.
As 2013 began, there was growing pressure to lower rates since reinsurance costs had declined by 15% since 2012, while claim expenditures dropped due to the absence of recent hurricanes and previous rate increases had bolstered premium revenues.
Post Michael situation
By 2019, the number of policies held by Citizens had decreased to 419,000 but later climbed again due to market instability. Numerous insurers withdrew from the high-claim South Florida region or declined to renew coverage on homes with roofs older than a decade or constructed prior to the post-Hurricane Andrew building standards. Between April 2021 and early 2022, four insurance companies ceased operations because of insolvency, including Avatar Property & Casualty, which left 37,000 policyholders without coverage; approximately 2,000 claimants awaiting settlements encountered difficulties obtaining new insurance owing to underwriting constraints. Lexington Insurance’s departure from the homeowners insurance sector displaced another 8,000 policyholders; while Lexington focused on homes valued above $1 million, Citizens primarily insures properties valued under $700,000.
By March 25, 2022, Citizens’ policy count had grown to 807,910. Although the Florida Senate approved legislation aimed at curbing “free roof” claims and associated litigation during that legislative session, the House did not pass the measure. On March 23, 2022, executives from Demotech alerted Florida officials that failure to implement reforms before the June hurricane season could lead to downgraded financial strength ratings for several Florida insurers. Senator Jeff Brandes and others warned that insurer failures would increase Citizens Property Insurance Corp’s liabilities, result in substantial disbursements from the Florida Hurricane Catastrophe Fund, and threaten the stability of the real estate market. Following Hurricane Ian in October 2022, Citizens’ policies surpassed 1.1 million, with projections indicating a 15% market share by year-end.
From early 2022 through the first quarter of 2023, seven Florida insurers became insolvent, including United Property & Casualty Insurance (UPC), which held 135,000 policies predominantly in Southwest Florida. UPC reported $864 million in losses related to Hurricane Ian across 25,000 claims. To address these insolvencies, the Florida Insurance Guaranty Association imposed emergency assessments exceeding 2% on all property insurance policies statewide during 2022 and 2023.
As of April 7, 2023, Citizens’ policy count reached roughly 1.25 million. The Citizens Insurance Board proposed a rate increase of 14.2% effective November 2023; however, state law restricts annual rate hikes on homesteaded properties to a maximum of 12%.
In August 2023, the Florida Office of Insurance Regulation authorized an average commercial rate increase of 9.2% but rejected residential rate requests averaging 12%, citing concerns that rates were calculated based on “overall” rather than “individual” actuarial soundness.
Depopulation
Despite regulations mandating homeowners insured by Citizens also carry Federal Flood Insurance, policy numbers exceeded 1.3 million as of June 2023. Two private insurers agreed to take over approximately 26,000 policies in spring 2023, with Citizens continuing efforts to reduce its portfolio toward a sustainable size.
Florida Governor Ron DeSantis acknowledged the risk of insolvency at Citizens: "If a major hurricane struck affecting many Citizens policyholders, there would not be sufficient funds for payouts." He also enacted legislation allowing private insurers to charge rates up to 20% higher than those offered by Citizens.
Florida House Bill 837, passed on March 24, 2023, seeks to limit insurance-related litigation—a factor cited by insurers withdrawing from Florida markets—according to Insurance Commissioner Michael Yaworsky.
In August 2023, FOIR approved Texas-based Mainsail Insurance Company to enter the Florida market and revealed that nearly 280,000 Citizens policies are scheduled for transfer to various insurers by October 2023.
See also
External links
- Official website of Citizens Property Insurance Corporation
- Statutory Document for Citizens, 2012
- Homeowners Advocating for Affordable Coverage – Opposition to Citizens
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