How Florida’s state-backed insurance went from last resort to largest provider

It was meant to be the insurance of last resort. But along the way, Florida’s government-backed Citizens Property Insurance Corporation became the largest insurance provider in the state.

"Citizens Property Insurance, which was created decades ago, it is not solvent, and we can't have millions of people on that, because if a storm hits, it's going to cause problems for the state," Florida Gov. Ron DeSantis said in February 2024.

Then came two storms back to back. Together, Hurricanes Helene and Milton caused tens of billions of dollars in insured losses . Is Citizens up to the task?

"They are actually very financially secure this year," Proffesor Charles "Chuck" Nyce, who serves as department chair of Florida State University's Risk Management and Insurance, said. "I believe what Gov. DeSantis was trying to say is that we don't want Citizens having this type of exposure and having the need to do assessments ."

Assessments happen when Citizens does not have enough money to pay its claims. First, it applies a surcharge to its own policyholders. But if that is not enough, the state requires Citizens to charge a premium to insurance holders statewide, whether with Citizens or not. Citizens will have to do this for as many years as it takes to plug the deficit.

Citizens told Straight Arrow News it "has the financial capability to handle a 1-in-82-year storm without having to levy assessments on non-Citizens policyholders." For context, Citizens says 1992’s Hurricane Andrew was a 1-in-43-year event.

"Hurricane Andrew is what we kind of describe as a wake-up call," Nyce said. "It was really the first experience for the insurance industry of what a large-scale catastrophe could look like in the United States. I started graduate school the year after Hurricane Andrew. So my entire academic career has been trying to figure out how to pay for catastrophes that can occur."

Hurricane Andrew bankrupted several insurance companies, leaving hundreds of thousands in Florida without insurance. Other major insurance providers dramatically mitigated their risk in the state by shifting their focus more inland.

"Now the problem is, for the state of Florida, we have a lot of coastal exposure, so we had to find a way to still insure those properties that were out there," Nyce said.

Local companies popped up to fill the gaps, while the state created two insurers of last resort that later merged in 2002 to become Citizens Property Insurance Corporation. Nyce said the system worked well until 2004 and 2005, when storms repeatedly hit the Sunshine State, causing tens of billions in losses.

For Florida’s insurance landscape, it was Groundhog Day. Insurance companies dried up and more left the state. But this time, they had a backstop in Citizens, and Citizens’ policies ballooned.

"They were designed to be the market of last resort," Nyce said. "By 2010, 2011, there were 1.4 million policyholders in Citizens. The good news for the state is from 2005 through 2016 we didn't have any landfalling storms."

Citizens successfully shed policies back into the private market until it was down to a little more than 400,000 by 2019. But more storms and litigation costs again broke the private market.

"For 2021, 2022, 2023, Citizens was becoming the option of first resort," Nyce said. "There was a number of areas where insurance was not available and not available at a fair price. So Citizens became the option."

Policies swelled back to over 1 million in 2022 and now sit at 1.265 million as of Oct. 4, 2024.

In order to get customers off the state-backed Citizens and back into the private market, a private insurance provider must be willing to underwrite the client at a price that is no more than 20% higher than what they pay at Citizens. At that point, Citizens can "depopulate" that customer.

Depopulation is "trying to push Citizens back to a market of last resort rather than a first choice," Nyce explained.

"I think it's more attractive today to offer policies than it was over the last 20 years," DeSantis said in February. "But, you know, Rome wasn't built in a day."

Citizens told SAN that before Hurricanes Helene and Milton , it expected to dip below 1 million policies by the end of 2024. These storms could put that goal in jeopardy.

"When losses get really bad, that's when the state should come in," Nyce said. "When they get really, really bad, that's when the federal government should come in. But for the storms like Helene, that should be private market stuff that's handling those types of things. But it's an issue we have."

Nyce said from an insurance perspective, homeowner policies used to be considered low-risk and relatively stable. But that’s no longer the case in much of the United States , andnd that’s when states see the private market disintegrate.

"If we can solve it in Florida, it'll be a great lesson to take to other states," Nyce said.

When it comes to insurance risks, it’s not just hurricanes in Florida and Louisiana. It’s wildfires in California, tornadoes in the Midwest and severe convective storms hitting everywhere in between. Florida may be the tip of the spear for storm exposure, but it does not stand alone.

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