Citizens home insurance policies soar in Central
Florida; higher costs could hit all our pocketbooks
Article Courtesy of The Orlando Sentinel
By Trevor Fraser
February 11, 2021
State-run Citizens Property Insurance is sounding
alarm bells over their rising number of policies it holds in Orange,
Osceola, Seminole and Lake counties.
CEO Barry Gilway says Florida’s overall
insurance market is “unhealthy” and has warned of higher
premiums ahead for all Florida homeowners if the trend
Q: What is Citizens Property Insurance?
A: Citizens was created by the Florida legislature in 2002
as a not-for-profit government entity to insure the homes
that private insurers wouldn’t cover. After 1992's Hurricane
Andrew bankrupted insurance companies and left many coastal
homes without coverage, the state began working on a
solution to covering catastrophically endangered properties,
which eventually led to the creation of Florida’s “insurer
of last resort.”
Q: Is Citizens state-subsidized?
A: Yes. While taxpayers don’t directly foot the bill for
Citizens policies, Citizens has a 10% annual cap on rate
increases to individual policies, which has kept prices
lower than average. Private companies are capped by the
state at 15%, but they can ask for and receive more. Last
year, insurers were granted exemptions to hike rates by as
much as 33.5%.
Barry Gilway, CEO of Citizens Insurance, is one of
the experts sounding the alarm on the rise of policies the state-run
insurance agency in Central Florida.
Citizens’ losses from a hurricane or other natural
disaster can become a problem for all Florida homeowners. More on that
Q: Why is Central Florida getting all this attention?
A: “Historically in Florida, the riskier policies are considered to be
on the coast,” said Citizens spokesperson Michael Peltier. Hence, growth
in Citizens policies was usually treated as a major issue for coastal
and South Florida counties.
In Orange, Osceola, Seminole and Lake counties in 2015, there was a
total of 4,863 Citizens policies for all personal residential
properties. Those numbers began rising in 2016, and those four counties
have more than doubled their policy counts to more than 10,000.
Q: Why is this happening?
A: The largest reason for the exodus to Citizens is private insurers are
leaving the area, Peltier says. “As companies try to shore up their
books, they’re being more restrictive on the policies that they cover.”
One factor that has caused private insurers to pack up is the rising
cost of reinsurance, which is when insurers underwrite other insurers to
help ease some of the risks. After active hurricane seasons in the past
five years, including last year’s record-breaking season, rates for
reinsurance have been on the rise.
But the factor private insurance companies are complaining about most in
Central Florida is a rise in lawsuits they say is caused by misuse of
Assignment of Benefits agreements.
Q: What is Assignment of Benefits?
A: Assignment of Benefits is an agreement where a homeowner gives a
third party the right to file insurance claims and handle the payout. If
something in a home is broken, a restoration company may ask for an AOB
agreement so that they can submit the claim and be paid directly by the
Q: How does this hurt the insurance companies?
A: After major hurricanes, public adjusters or restoration companies
such as roofers would approach homeowners who had minimal, if any,
damage and promise them a new roof if they would sign an AOB. Then the
company would file a claim for damages. The insurance company would deny
the claim, saying the damages weren’t caused by the storm or were
related to the roof being old.
Then the claim would go to court. The problem for insurance companies is
that if they lose, they wind up paying more than if they hadn’t gone to
court. A report by Citizens found that a litigated water claim in 2020
cost on average $48,814, compared with $10,097 for a claim that stayed
out of the courts.
While this used to be a problem mostly related to the coasts, insurance
experts say this has become a major issue inland. Some public adjusters
even advertise about approaching homeowners directly. At a Florida
Senate committee on banking and insurance in January, Gilway produced a
flyer from a company that read, “Your neighbors are getting new roofs.
Have you gotten your new roof yet?”
This is particularly true in Central Florida counties that have seen a
jump in litigation. Since 2016, Orange, Osceola, Seminole and Lake have
seen a 580% increase in property claims that have gone to court,
according to data from Citizens.
As litigation rates have risen, private insurers have stepped out of the
market. “As the insurer of last resort, if people cannot find reliable
coverage in the private market, most people are going to come back to
Citizens,” Peltier said.
Q: Why is this a problem for people who don’t have Citizens?
A: If Citizens’ payouts for claims exceed the company’s funds, the
company can add a surcharge on all Florida policies, including
homeowners, renters, automobile and boat insurance, to recoup their
After the 2004-2005 hurricane seasons, which saw damage from a combined
eight storms, Citizens was left with a $1.7 billion shortfall. Beginning
in 2007, Citizens issued a 10-year bond and levied a 1.4% assessment on
all Florida property insurance policyholders. That assessment dropped to
1% in 2011 and ended in 2015.
As of September, Central Florida counties represented $1.5 billion in
potential exposure for Citizens policies, according to Florida’s Office
of Insurance Regulation
Citizens has a $6 billion surplus to cover catastrophes. “We’re in a
strong position,” Peltier said. “We have enough to cover a 1-in-100
But that number has eroded from a peak of $7.4 billion in 2016. “We had
to dip into reserves in recent years to pay claims,” Peltier said.
Q: How has Citizens solved this problem in the past?
A: Citizens peaked in 2012 with 1.5 million policies. The company worked
with private insurers to take on some of their customers, getting down
less than 420,000 policies in 2015, a number Peltier calls “a pretty
good benchmark of those policyholders that a true residual market can
That program, referred to as the Depopulation or Take-Out Program, isn’t
working this time. “Most of the policies that private insurers wanted
have been taken out already,” Peltier said.
As of February, Citizens had a total of 545,000 policies in force
statewide, a rise of 57,000 policies since the end of 2015. Orange,
Osceola, Seminole and Lake represent nearly 9% of that change.
Q: Can’t they make changes to AOB?
A: They did. In 2019, the Legislature passed a couple of reforms to the
AOB process, creating stricter rules for companies that file them and
allowing homeowners to cancel the deal under particular circumstances.
Peltier said the reforms have been an improvement, but they’ve had no
effect on other insurance litigation beyond the AOB cases.
Q: What solutions is the state proposing?
A: Senate President Wilton Simpson has proposed legislation that would
eliminate multipliers, a special agreement in which an attorney can ask
a judge on a complex case to multiply the award if he or she wins.
Simpson thinks the change would reduce the number of attorneys willing
to take on cases.
Simpson has also suggested looking at reducing the time to file a claim
after a hurricane from three years to one.
Q: What do attorneys have to say about this?
A: Attorneys who regularly battle with insurance companies say these
moves will make it harder for average people to get a claim paid. “You
think there are a lot of denials now? Think about if people like me
didn’t exist,” Mark Nation told the Orlando Sentinel. Nation also said
that multipliers were “rarely asked for and rarely received.”
Q: What is Citizens doing?
A: Citizens’ Board of Governors in January approved a plan to charge new
customers “actuarially sound rates,” essentially erasing the 10%
rate-change cap for new policies. The plan must be approved by the
Office of Insurance Regulation.
All of these solutions will have consequences on consumers, from rising
rates to potential hurdles in litigating claims.