The state’s insurer of last resort has bloated to an enormous size as the market spirals downward.
The Florida property insurance market has reached a critical state, said the CEO of Citizens, the state’s insurer of last resort. The cost of coverage has caused Citizens to become bloated, with thousands of new homeowners signing on every week, slashing chunks out of the market.
The result is that the market as a whole in the state has reached a point in which it is collapsing.
“The reality is the marketplace in Florida is shutting down,” said Barry Gilway, Citizens president and CEO. Gilway was speaking at a Florida Office of Insurance Regulation hearing. There, he underscored the crumbling state of the Florida property insurance market while addressing state regulators.
He placed the spotlight on five consecutive years of losses resulting from contractor schemes, excessive litigation, the rising cost of reinsurance, and regular major catastrophes. The outcome has been reduced insurance capacity and rapidly rising costs for homeowners. Last year’s net underwriting losses for carriers in the state is forecasted to reach a combined $1.6 billion, said Gilway. Insurers in the state also experienced income losses reaching almost $840 million last year.
Florida property insurance companies that were previously profitable are no longer showing profits.
“Companies that are operating in the market are not profitable, have not been profitable, and frankly some of them are having to pay high rates of return just to get the capital in order to continue writing the level of business that they are writing today,” said Gilway.
Insurers across the state are making moves to shrink their exposure in regions in which the litigation rates and reinsurance costs are high, explained Gilway. As a result, four insurers in the state have stopped accepting new business. A minimum of a dozen companies have implemented tight underwriting restrictions. These include new business and renewals limitations depending on locations, the age of a structure’s roof, the age of the home itself, on the required minimum limits for Coverage A, and on policy cancellation.
Gilway’s figures show that Citizens is taking on 5,000 new policies every week. By the end of the year, the Florida property insurance company of last resort will have 700,000 policies by the close of this year as other carriers keep bumping their rates and reducing capacity.