Citizens Property Insurance Corporation

Though it was originally conceived as a state-based insurance agency of last resort, Citizens Property Insurance Corporation held 23 percent of Florida homeowners’ policies in 2012—approximately 1.4 million policies. • As of April 2014, Citizens has reduced its policies to 940,000, showing significant progress in scaling back its liability. • However, Citizens still has too much liability, and a major hurricane could bankrupt it.

After Hurricane Andrew passed through Miami in 1992, some Floridians had trouble obtaining property insurance. In response, the Florida legislature created two insurers of last resort, along with the Florida Hurricane Catastrophe Fund that insurers could draw on in the event of large hurricane-related claims. In 2002 the two insurers were merged into Citizens Property Insurance Corporation, which is a state-owned and state-operated insurance company. The intention was for Citizens to be an insurer of last resort.

Because insurance rates are regulated in Florida, it is possible that certain homeowners could find themselves unable to buy homeowners insurance at any price. An unregulated market would set the market price for insurance as it does for other goods and services, so that the quantity supplied equals the quantity demanded, but with regulated prices, it is possible that no insurer would be willing to issue policies to some homeowners at the state-mandated price. After relatively quiet hurricane seasons from 1993 to 2003, Florida was hit by four major hurricanes in 2004 and another five in 2005, causing property insurance rates to increase, which resulted in the widespread feeling among Florida’s citizens that government should do something to hold property insurance rates down.

Charlie Crist was running for governor at the time, and he based part of his campaign on lowering insurance rates. Shortly after he was elected in 2006, Crist lowered the rates charged by Citizens to make them more competitive, with the thought that competition from the state insurer would force private insurers to also lower their rates.[1] One result was that Citizens expanded substantially and by 2012 was Florida’s largest property insurer, with about 1.4 million policyholders, insuring about 23 percent of Florida’s homeowners.[2]

Florida has been fortunate that no hurricanes have made landfall in the state between 2006 and 2014, which has shielded Citizens from taking major losses beyond its financial ability. Another major hurricane could bankrupt Citizens and leave Florida’s taxpayers on the hook for the losses. The potential liability Citizens presents to the state is well recognized, but the state has been slow deal with it, partly because the insured homeowners have been a political force and do not want to be forced to switch to private insurers with higher premiums. One method the state has been using to shed Citizens policyholders has been paying private insurers to take them. This has been controversial, and branded by critics as corporate welfare.[3] By April 2014, Citizens had reduced its number of policies to about 940,000, so Florida is making some progress on this front.[4]