Homeowners brace for 14% insurance rate hike as insurer tries to stabilise market

Homeowners brace for 14% insurance rate hike as insurer tries to stabilise market | Insurance Business America

Property

Homeowners brace for 14% insurance rate hike as insurer tries to stabilise market

Millions could be affected as hurricane season bears down on state

Property

By
Matthew Sellers

Recent years have seen Citizens become the largest property insurer in Florida, responsible for 18% of the market, but state officials have been actively working to transfer policies from Citizens to private insurers to mitigate financial risks associated with major hurricanes. Since October, over 400,000 policies have transitioned to the private market. “We’ve seen more than 400,000 Citizens policies move to the private market. Why is that a good thing? Number one, it eliminates risk exposure for Citizens, but number two, it shows the private market is healthier,” explained Mark Friedlander from the Insurance Information Institute.

Friedlander emphasized that this rate hike is essential for enhancing the competitiveness of Florida’s insurance market. “You are purchasing insurance from Citizens at a discounted rate. Many people may not think that; they think ‘I’m paying so much, what are you talking about?’ But you are buying Citizens Insurance at an artificially low rate.”

West Palm Beach homeowner Laura Bongarzone has felt the impact of rising insurance costs firsthand, telling CBS12 news that she had seen her premiums that were $2,800 in 2020 jump to $5987 this year.

For homeowners like Bongarzone, the proposed increase presents a challenging scenario. “You’re basically held hostage. You can go anywhere, no one is going to write insurance anymore, and if I go somewhere else, it’s going to be even more,” she said.

The proposed rate hike, which needs approval from both the Board of Governors and the Office of Insurance Regulation, could take effect on January 1, 2025. This would mark the largest average rate increase and only the second double-digit hike in Citizens Insurance’s history.

“These are very positive indications that we’re creating an environment where there’s a potentially more stable marketplace inside of the state of Florida, and there’s more competition,” commented Charlie Lydecker chairman of Foundation Risk Partners and member of the Board of Governors.

Citizens Insurance, covering 1.2 million policies, was originally designed for homeowners unable to secure insurance in the private market. However, as private insurers canceled policies and raised rates, Citizens became the more affordable option. “They cannot charge what we refer to as actuarially sound rates, meaning if they were a private insurer, they would have been charging much higher rates over the past several years just based on market conditions, risk exposure,” Friedlander noted.

Despite the rate hikes, the private insurance market has seen lower increases this year, indicating its improved health. “The bottom line is, the private insurance market has gotten much healthier,” Friedlander added. “That’s why they’re able to adjust their rates now to very moderate levels.”

New insurers entering the market have, however, had their strength questioned. “[W]e show that traditional insurers are exiting high-risk areas, and new lower-quality insurers are entering and filling the gap,” an abstract of a Harvard/Columbia/Federal Reserve study states. “These new insurers service the riskiest areas, are less diversified, hold less capital, and 20% of them become insolvent.”

Citizens Insurance expects to attract thousands of new customers during the hurricane season, although de-population efforts will be on hold during this period. “Our real dream is de-population and reduced rates,” Lydecker remarked.

While the proposed rate hike is less than half of what would be needed without a cap, the Board of Governors anticipates the number of policies could drop below a million. The Florida Office of Insurance Regulation must still approve the increase, with the possibility of sending it back for amendments and re-filing.

As the state navigates these changes, homeowners are left searching for viable insurance options amid a fluctuating market landscape.