Florida Regulators, Citizens Property Insurance Corp. Defend Take-Out Process

AM Best–November 11, 2008

A recent newspaper article in Florida, which alleged the state’s take-out program is a ploy to forcibly move policies from Citizens Property Insurance Corp. to weak insurers, has been criticized by the Florida Office of Insurance Regulation and Citizens.

“The Florida Office of Insurance Regulation would not allow a financially unsound company to take policies from Citizens,” said OIR spokesman Tom Zutell. He said the OIR has on its Web site consumer information about each of the 14 companies approved to take policies from Citizens, including financial statistics, business plans and approvals from the OIR to assume policies from state-run insurer.

The “depopulation program” is designed to spread the risk by giving some policies from Citizens to private, domestic take-out companies. Citizens, meant to be the state’s insurer of last resort, had grown beyond its means to become one of the largest writers of homeowners multiperil in the United States because of a lack of insurance options on the Florida coast.

As of Oct. 15, nearly 1.1 million policies have been removed from Citizens, said Citizens spokesman John Kuczwanski. More than 300,000 have been removed from Citizens so far this year and another round of take-outs is scheduled for later this month, according to Citizens data.

“Once we give them (take-out companies) a list of policies, our involvement in the process is minimal but to imply that policyholders do not have a choice, is wrong,” Kuczwanski said. “The process has been changed to ensure the policyholder has choices and we hope they consult their agents.”

When a private insurer in Florida identifies a policy it would like to assume, it must first notify the policyholder’s agent. If the agent approves of the assumption, a letter is sent to the policyholder, who continues to have the option of whether to go with the private company or stay with Citizens. As part of some reform to the program this year, Citizens is now also required to notify policyholders even if their agent disapproves of an assumption. In addition, if a policyholder goes with a private company but would like to return to Citizens, that too is possible within a 30-day grace period.

Kuczwanski said there is a future potential benefit of going with a private company. Should a large storm hit Florida, Citizens policyholders are assessed 15% of premium per policy. Policyholders with private companies are assessed 6% of premium only if assessments to Citizens policyholders are not enough to cover losses.

Zutell said take-out companies are only approved if they meet stringent financial requirements, including enough surplus to handle a 1-in-250 year storm. Though untested because a large storm has not hit the Sunshine State since many of these domestic take-out companies have formed, each is scrutinized by the OIR every time it applies to assume policies from Citizens, Zutell said.

A.M. Best Co. does not rate any of the 14 insurance companies approved to take-out policies from Citizens except for Argus Fire & Casualty Insurance Co., which currently has a Best’s Financial Strength Rating of C- (Weak).

In 2007, the top five writers of homeowners multiperil in Florida, according to A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with a 21.3% market share; Citizens Property Insurance Corp., with 20.5%; Universal P&C Insurance Co., with 6.1%; USAA Group, with 5.2%; and Tower Hill Group, with 4.4%.