Hurricane Idalia Might Wreck Florida’s Insurer of Last Resort

The entire state of Florida may end up on the hook for damage caused by Hurricane Idalia.

That’s because the state-run insurance company, Citizens, has hundreds of thousands of policies in the area that could be hit by the storm. The most recent National Hurricane Center forecast projects the largest storm surge just north of the heavily populated Tampa Bay area in counties where Citizens has over half the market. The center is also expecting high winds from Tampa north all the way to the state’s Big Bend region, and unlike many private insurers in the state, Citizens is willing to cover wind damage.

Citizens is designed to be backup for Floridians if they can’t get private insurance for their homes and commercial property. As more and more insurance companies leave the state or go out of business, the company has massively expanded its reach over the state’s insurance market. In 2023, Citizens expects to have 1.7 million clients with $5.1 billion in premiums, compared to under 500,000 policyholders and $877 million in premiums in 2019, according to the company’s budget report.

“The difference for this storm of a few degrees is billions of dollars to Citizens,” Jeff Brandes, a former Florida state senator and president of the Florida Policy Project, told me. If it hits Pasco or Hernando counties head-on, Brandes said, the resulting insurance claims could exhaust Citizens’ current surplus and force it to issue “special assessments” — essentially one-time bills — on the state’s policyholders, including drivers. Citizens has over 50% of the property insurance market in the two counties north of Tampa Bay, according to Brandes, meaning that substantial storm damage could incur large losses for Citizens.

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Florida’s domestic property insurers have been losing money on underwriting — the difference between premiums collected and claims paid — since 2016, according to the state’s Office of Insurance Regulation. Earlier this year, another Florida insurer, United Property & Casualty Insurance Company, was declared insolvent. Farmers said in July that it would leave the state, one of several insurers to stop doing business there or go out of business entirely.

The combination of high risk from storms and an increasingly uncompetitive insurance market has led to some of the highest home insurance premiums in the nation. In Hillsborough County, homeowners pay an average premium of $2,752, while in Miami-Dade, it’s $5,665.

These high costs are driven by a combination of Florida’s, especially the coasts’, high risk of storm damage to property, and its uniquely litigious environment, which the Florida state government has tried to reform.

Citizens, however, is unlikely to face insolvency because it has an immense backstop: Floridians. If any of the company’s separate accounts are overdrawn (they’re scheduled to be combined early next year), the company can issue assessments to make up the difference.

“A devastating storm or series of smaller storms could cause a deficit in one or more account, leaving Citizens without enough money to pay all claims. If this happens, Florida law requires Citizens to charge a series of assessments until the deficit is paid,” according to the company.

The first level of assessments goes to Citizens policyholders, then a 2 percent surcharge on the premiums paid by private insurance policyholders for the company’s Coastal Account which provides coverage in specified high risk areas. The third level of assessments goes to both private and Citizens policyholders — including home and auto insurance policyholders — until the accounts are made solvent.

“Emergency Assessments can be up to 10% per account per year for each of Citizens’ three accounts. It is levied on both Citizens and non-Citizens policyholders for as many years as necessary until the deficit is resolved,” according to Citizens.

“They have this incredible assessment base,” Brandes told me. “If someone is paying $3,000 [in annual premiums], they can force you to write another for $1,200 or $1,300. Imagine people’s shock when that shows up at their door.”

Earlier this year, Citizens reported that “due to Hurricane Ian, Citizens’ financial resources have been significantly depleted,” and that its surplus had declined to just under $5 billion. This could mean that Florida policyholders could be on the hook for the state-run company: “If Florida is impacted by a storm or series of storms in 2023, Citizens will need to rely on its assessment capability and/or post‐event financing to meet its policyholder obligations,” Citizens said in the report.

“You see massive amount of socializing risk [in a state] that doesn’t want to talk about socialism,” Brandes said. “We’re the free state of Florida except for our largest liability — Citizens — which we are happy to subsidize.”

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