Citizens Property Insurance is Florida’s state run home insurance company. It was formed to offer home insurance coverage to consumers unable to find coverage from a private Florida home insurance company. Homeowners in Florida turn to Citizens for coverage due to one or more risk factors that make their home undesirable to private insurance companies. These risk factors include among other things – the home’s age, distance from the coast, construction materials, and roof type.
Citizens Property Insurance depends on a mix of pre-event hurricane borrowing and imposing after the storm surcharges on all Florida home insurance policies if it doesn’t have the money it needs to pay claims.
This potentially lethal mix of high risk homes along with being under funded is one of the reasons that it’s always been a good idea to try to reduce the number of policies in Citizens Property Insurance. The smaller the number of policies that the company has, there is less chance that policyholders across Florida will have to pay large special assessments for many years after a major hurricane.
One of the ways that is done is by encouraging private home insurance companies to assume or “take out” policies currently covered by Citizens Property Insurance – hence the name “take out companies”. The take out process is also referred to as depopulation.
Attracting companies to assume or take policies out of Citizens Insurance Florida is good public policy.
In addition to moving more of Florida’s wind risk to the private market, customers may also get better customer service from a private take out company that doesn’t have a massive base of over 1 million customers like Citizens. They are also usually rewarded with annual insurance premiums that are lower than what they were paying Citizens. Finally, policyholders with private insurance companies are subject to smaller special assessments after major hurricanes.
Florida take out home insurance companies come to life with an immediate customer base of policyholders without having to make the usual investments in marketing and adverting. When these companies are initially capitalized, its easier for them to raise money because investors know that the take out companies will have an immediate customer base and money coming in immediately after they assume policies from Citizens.
Despite all the good that comes from reducing the number of Florida home insurance policies in Citizens Property Insurance, the take out program is not without its problems.
Policyholders are often concerned about the financial stability of the take out insurance companies. Many are start up companies and have a small surplus available to pay claims of $20 million or less. With Florida hurricane claims averaging $30,000 or more, even after a company’s reinsurance kicks in, there might not be enough money to pay all of the claims.
A significant number of take out companies were created after Florida’s 2004/2005 hurricane seasons. Policyholders are concerned that if their home has a hurricane claim in 2009, that their home will be “on-the job” training for the customer service staff at these newly formed companies – inexperience that could cause delays in paying claims fairly and prompty.
Many of these take out companies milk the policy base they assume and never go on to write any new business beyond the policies they take out of Citizens. Companies that don’t diversify their policy base beyond the original take out policies are more vulnerable to collapsing after a major Florida hurricane.
Last but not least, Florida insurance agents who originally wrote the policies that are being removed from Citizens might not want to become an agent with the new take out companies – even if it means they will lose the business. They simply might not want to add a new company to the mix of companies they already represent. Or they could have real concerns about the financial stability of the new take out company. The agent can’t stop consumers who want to benefit from a take out offer. However, an agent’s reluctance to be an agent with a particular company should at a minimum cause a consumer to pause and move forward with caution.
Here are the questions you should be asking your current Florida insurance agent if you are with Citizens and you are sent a take out offer – before you decide whether to move your Florida home insurance from Citizens to the new take out company:
How long has it been in business? Has it ever handled Florida hurricane claims before? If so, how many customers have filed complaints against that company for inadequate customer service.
How financially strong is the take out company? What are its financial ratings? How diversified is the company’s policy base across both Florida and other states? Are the policies being assumed by the take out company in North Central Florida, or in hurricane ground zero along the South Florida coast?
If your agent is not willing to become a new agent of one of the take out companies, that alone should be a warning sign to you. By taking this position, your agent is risking the loss of the commission your policy. Find out from your agent why they don’t want their agency to accept an appointment with the new take out company. The answer your agent gives you, might tell you everything you need to know about whether you should accept the offer from the new take out company.
Last but not least, ask your agent if there are any other Florida home insurance companies who might want to cover your home. The private home insurance market in Florida is always changing and there might be other companies now covering homes like yours that are a lot more stable.
Don’t forget, if you don’t bother to investigate these take out insurance companies, you will be the one that could be living with an unpaid claim after the next Florida hurricane.