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US Senate Questions Citizens Property Insurances’ Ability to Pay

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Many Hernando County residents are no strangers to Florida’s property insurance woes. As insurance rates have soared and many insurers have pulled out of the state, residents have increasingly turned to state-backed Citizen’s Property Insurance for coverage.

The U.S. Senate Budget Committee, led by Democrat Senator Sheldon Whitehouse (R.I.), last week launched a comprehensive inquiry into Florida’s Citizens Property Insurance Corp.

The inquiry focuses on the insurer’s vulnerability to climate risks and the possibility of a federal bailout in case of a large-scale disaster. Citizens is the state-backed insurer of last resort for Florida home and business owners who, for various reasons, may be unable to obtain insurance in the private market.

The Committee’s request, addressed to Florida Governor Ron DeSantis, state Insurance Commissioner Michael Yaworsky, and Citizens President and CEO Tim Cerio, seeks a wide array of documents and information. This inquiry underscores concerns about the insurer’s financial resilience in the face of worst-case hurricane scenarios and their ability to handle claims without external assistance.

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Senator Whitehouse’s letter underlines the rapid increase in Citizens’ policy count and refers to a state law that allows Citizens Property Insurance to impose “assessments” on all Florida insurance policyholders to pay claims. The letter raises the prospect that, in the event of insufficient coverage for losses, the state might request federal aid, potentially impacting American taxpayers.

Citizens spokesman Michael Peltier stated that the organization is well-prepared to protect its policyholders and settle claims, even following a major disaster. According to Peltier, Florida law enables Citizens to levy surcharges and assessments to ensure financial stability.

The Senate Democrat’s inquiry occurs amidst a volatile period in Florida’s insurance sector, with private insurers retreating and rates escalating. Despite efforts to shift policies to private insurers, Citizens’ policy count has seen a significant rise, highlighting the growing reliance on the state-backed insurer.

The state’s insurance sector is grappling with significant shifts, primarily driven by private insurers retracting their coverage for numerous policyholders and imposing steep rate increases. This situation has led to a remarkable increase in the policy count of Citizens Property Insurance Corp., a government-backed insurer in Florida. The policy count for Citizens experienced a significant rise, reaching approximately 1.412 million this fall. This number is notably higher compared to the 532,788 policies it held as of November 30, 2020. Although it was less than the 1,472,391 policies that Citizens’ had on December 31, 2011 and similar to the 1,401,167 policies that Citizens’ had on October 31, 2007.

In response to these market dynamics, Florida’s legislators in September initiated measures aimed at transferring insurance policies from Citizens to the private insurance market. The measures have resulted in a notable decrease in Citizens’ policy count, which was reported to be around 1.255 million as of the previous week.

In their detailed letter, the Senate Budget Committee has posed seven critical questions to Citizens Property Insurance, demanding comprehensive answers by December 21, 2023:

Modeling of Worst-Case Hurricane Scenarios: What analysis has Citizens conducted to estimate its total potential exposure to various worst-case hurricane scenarios? What is the upper limit of potential losses?

Market Share Projections: What analysis has been done to estimate Citizens’ market share over the next decade? What market share is projected for each of the next ten years?

Ability to Pay Out Claims: What analysis has been conducted to determine Citizens’ capacity to fully pay out claims in various loss scenarios?

Financial Assets and Reinsurance Coverage: What are Citizens’ current assets? What is the total reinsurance coverage? What are the maximum claims Citizens can pay without levying an assessment on policyholders?

Communications Regarding Solvency: What communications have occurred with Governor DeSantis, Commissioner Yaworsky, and other state officials regarding Citizens’ current or future solvency?

Communications on Covering Losses: What discussions have taken place regarding actions if Citizens were unable to cover its losses?

Consideration of Federal Bailout: Has Citizens contemplated a federal bailout if unable to cover losses? What discussions have occurred regarding this possibility with state officials?

The Committee’s hearings last March featured testimonies from various experts and highlighted the growing economic risks due to climate change. The focus was on the increasing frequency of extreme weather events, rising insurance premiums, declining property values, and systemic risks comparable to the 2007-2008 financial crisis.

The Senate Committee on the Budget oversees legislation related to the budget process and has extensive authority to investigate the budgetary effects of existing and proposed legislation.

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