Florida's Insurance Market is About to be Upended

The rules around selling policies for Florida's state-backed insurer of last resort Citizens Property Insurance Corp. are about to change as a bill signed into law by Governor Ron DeSantis last month comes into effect on July 1.

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Under House Bill 1503, insurance agents in the Sunshine State will be required to have at least three appointments with authorized carriers before they can sell policies for Citizens. Until now, insurance agents were required to have only one appointment.

The law comes at a time when Florida homeowners are struggling with skyrocketing premiums and limited policy offers as a crisis in the sector is unfolding in the state. Excessive litigation, fraud and the growing risk of more frequent and more severe natural disasters, fueled by climate change, have all contributed to the rise in insurance costs and to an exodus of private insurers in the state in the past few years.

While some have cut coverage across Florida, pulling out of the most vulnerable areas, others have withdrawn from the state entirely, leaving homeowners scrambling for options and looking at Citizens for a policy.

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Karen Roeling, a commercial lines producer with Seibert Insurance Agency in Tampa, Floirda, told the Insurance Journal that the new law is "not a bad thing for consumers," as it gives them more options.

Agents lacking the required appointments "will lose the ability to write, service, or renew business in that line of authority," a bulletin from Citizens writes.

"The requirements to engage with three admitted carriers before being allowed to sell Citizens policies is designed to ensure that Citizens is the market of last resort, not the primary landing place for Floridians," Charles Nyce, department chair and a Dr. William T. Hold associate professor of risk management and insurance at Florida State University, told Newsweek.

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"This will help insure the professionalism of the agent in that they are truly able to shop around for the insured and really provide viable options rather than just placing every customer in Citizens," he added. "It will help Floridians in the long run to ensure that their insurance agent is performing the functions that is expected of an insurance professional."

The new law also allows surplus lines insurers meeting state standards to take out Citizens policies on secondary homes. Surplus lines insurers are out-of-state insurers that haven't been officially admitted to the state market, which means that—while they are still subject to some kind of regulatory oversight—Florida's Office of Insurance Regulation hasn't approved their rates and any dispute over a damage claim must be resolved outside of the state.

Surplus lines insurers are crucial in offering coverage in high-risk areas that private insurers in the domestic market might not cover. They also have the potential to help reduce the number of policyholders under Citizens, which Florida lawmakers have been trying to cut after it ballooned in the past year.

Citizens is now estimated to have more than 1.171 million policies—around 18 percent of Florida's insurance market. In late January 2020, the state-backed insurers had a total of 443,229 policies in force. At its peak last year, it held 1.412 million policies.

The growth of Citizens has raised concerns over a potential insolvency of the company should it be hit by an explosion of claims after a particularly disastrous extreme weather event in Florida. In that case, all Floridians will have to pay for it.

Nyce believes that the new law, in this regard, will help the current marketplace.

"Most surplus lines companies are well-funded, well-run insurance organizations. They are very selective in what they are willing to write and at what price. They will provide much-needed capacity and competition to the Florida market," he said.

While there are some factors that homeowners should consider before taking a policy with a surplus lines insurer, "most surplus lines insurers are very well-run, very-well financed companies and do not face large insolvency risk," Nyce said.

"But that insolvency risk is not zero—there is some. Surplus lines is a great alternative for the more sophisticated insurance consumer who understands the product and what they are purchasing."

Are you a Florida insurance agent who'll be affected by the new law? Contact g.carbonaro@newsweek.com.