Tuesday, October 06, 2015
Citizens to shed at least 130,000 policies through 2016
Citizens Property Insurance Corp. has reduced its risk from nearly 1.5 million policies in 2012 to less than 586,000 policies today and sees itself shrinking further – to between 400,000 and 450,000 policies by the end of next year, company officials said this week.
About 47 percent of Citizens' remaining policies are in Broward, Palm Beach and Miami-Dade counties.
Private insurance companies absorbed 416,723 Citizens policies in 2014 and 141,680 so far this year through a state-mandated "takeout" policy that aims to reduce the amount of risk borne by Citizens.
"Takeout activity is just going at an unprecedented pace," Citizens President and CEO Barry Gilway said Wednesday at the company's Board of Governors meeting. "And the interesting thing is there's growing interest in areas of our business that didn't exist before."
For the first time, private companies are showing interest in taking over coastal and wind-only policies.
Gilway said the number of Citizens policies could be in the "low 500,000 range" by the end of the year.
That's because 465,357 more policies have been approved for takeout by the Office of Insurance Regulation in October and November. Tens of thousands of Citizens customers in South Florida can expect to receive letters stating that their policies will shift to a new carrier unless they "opt out" of the transfer and decide to stay with Citizens.
From January through July, about 22 percent of policies approved for takeout were actually assumed by new carriers, but insurers have been making fewer offers to approved policyholders since July. One reason is the private companies have already chosen the least risky of Citizen's policies. Remaining policies tend to be higher risk but cost less than what should be charged in the private insurance market.
Private companies have been able to grow rapidly in large part because of the low cost of reinsurance – what insurance companies buy from larger companies to make sure they can cover claims after a catastrophe. And reinsurance costs are low because fewer global catastrophes have occurred over the past few years, while low interest rates have persuaded more investors to enter the reinsurance market in search of higher returns.
In Florida as well, insurers are profitable and Citizens entered the storm season in June with $7.5 billion in surplus and $3.9 billion in reinsurance coverage because the state hasn't been hit by a named hurricane since 2005. That situation could change rapidly if a storm does occur, but for now, private insurers have been able to persuade policyholders to accept a transfer because they've been able to offer lower premiums.
Citizens this week outlined changes in how policyholders will be notified of their takeout selection by private insurers.
As of this month, offer letters will include a comparison of estimated premiums the policyholder will pay if they allow assumption by the new company, as well as if they remain with Citizens. Previous letters included only premiums for the new company.
"We think that's hopefully a game-changer with respect to folks having the information they need to make an informed decision," said Christine Ashburn, Citizens' vice president of Communication, Legislative and External affairs.
Policyholders will now get a letter from Citizens informing them about the takeout before they get a letter from the new company. Previously, only the new company sent a letter, which some customers mistook for junk mail.
Policyholders still must send "opt out" letters to the new insurer if they decide to remain with Citizens, but in the future, Citizens plans to enable an online method for opting out.
Read in FloridaRealtors.org