Florida’s Citizens Dealing with ‘Takeout Fatigue’

Faced with a rising number of consumer complaints, Florida’s state-backed property insurer has announced a series of changes to its takeout program. The news comes as the insurer said it is highly unlikely to need policyholder assessments in 2015.

Citizens Property Insurance Corp. has been focusing on its depopulation program under which private insurers are allowed to try to assume Citizens policyholders.

Citizens officials said the takeout program has reduced the size of the insurer from its high of 1.5 million policyholders in November 2007 to its current level of 727,000 policies. Those takeouts have sent Citizens exposure down from $511 billion to $229 billion.

All told, in 2014 private insurers assumed 300,000 Citizens policyholders. State regulators recently announced that it has cleared the way for five private insurers to assume 132,440 additional policies.

The takeout program, however, is not without its flaws.

Citizens policyholders are being inundated with offers of coverage as multiple private insurers are competing for the same policy. And there is little uniformity with regard to information provided by insurers, some of which neither the agent nor homeowners have previously heard of.

Although an agent or homeowner has the ability to reject the offers of coverage, in cases where multiple insurers make offers of coverage each offer must be responded to.

Florida Association of Insurance Agents President Jeff Grady said that these dynamics are creating a sense of takeout “fatigue” where agents and homeowners reject an offer of coverage as a matter of course.

“The result is a takeout acceptance rate of around 30 percent, which means there is a ton of time, money and talent being expended for a paltry return,” said Grady.

In response to the complaints by agents and policyholders, Citizens Vice President of Consumer and Agent Services Steve Bitner said the insurer is implementing a number of changes.

“We’ve heard some concerns and they have not fallen on deaf ears,” said Bitner. “We hear you and are making a slate of changes that we think will alleviate much of the confusion.”

One change is designed to make Citizens more proactive by sending out a so-called “encouragement” letter to policyholders prior to a private insurer sending out an offer of coverage. The letter is designed to provide policyholders with more information about the takeout process.

Rate Changes

Citizens is also putting together a Depopulation Working Group to respond to various policyholder questions. The group will be comprised of regulators, agents, private insurers and consumer advocates.

The most significant change, however, has to do with rates. Regulators for the first time have required private insurers to furnish policyholders with a comparison of their estimated renewal rates and those of Citizens. One common complaint among agents and policyholders is that after they agree to go with a private insurer, they then find their rates significantly increase at renewal time.

That dynamic has led to a “churning” process, whereby policies are removed from Citizens only to make their way back to the state-backed insurer.

In other news, Citizens officials said the insurer will enter the 2015 hurricane season with enough fiscal resources to avoid having to levy policyholder assessments.

In 2014, Citizens transferred $3.269 billion in risk from the coastal account, with $1.5 billion placed in the traditional reinsurance market and $1.75 billion in capital markets.

Those dollars, combined with the insurer’s $7.5 billion in surplus and $4.5 billion in potential reimbursements from the Florida Hurricane Catastrophe Fund, mean the insurer would have needed $1.69 billion in policyholder assessments to cover the losses from a one-in-100 year storm.

By comparison, in 2011 the potential assessment amount needed from policyholders was $11.6 billion.

This year, Citizens still has $1.95 billion in funds left over from 2014. And it anticipates being smaller due to the reduction in policies through the takeout program and the clearinghouse.

In fact, Citizens is likely to operate this year with the fewest policies it has had since 2005.

Given a soft reinsurance market and the creation of Everglades Re, which was created by Citizens to issue insurance-linked securities, Citizens officials are confident they can put together the financial resources so that policyholder assessments will not be needed.

“We are on the verge of eliminating, in the event of a one-in-100 year storm, the need for the dreaded ‘hurricane tax’ that has hung over the heads of Floridians for far too long,” said Citizens President Barry Gilway.

Topics Florida Carriers Agencies