Image source: https://kirsteininsurance.com/wp-content/uploads/2013/09/map.jpg
It's a known fact that Citizens Property Insurance doesn't charge enough in premiums for the risk that it takes. Instead it relies on a mixture of borrowing prior to major hurricane events and imposing surcharges on many types of Florida insurance policies after a storm 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 fewer number of policies the company has, the less risk there is of policyholders across the state being hit with massive 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.
For a lot of reasons, encouraging companies to take policies out of Citizens is good public policy.
Besides transferring more of Florida's hurricane risk to the private sector, policyholders may also get better customer and claims service from a private sector company that doesn't have anywhere near 1 million plus policyholders in Citizens. They also get an annual insurance premium that is usually less than what they were paying to Citizens. Finally, policyholders with private insurance companies are subject to smaller special assessments after major hurricanes.
Florida take out insurance companies get an immediate base of new insurance policyholders without the usual marketing and advertising expenses it takes to build a customer base. When these companies are formed, they have an easier time attracting capital because investors know that the take out companies will start earning premiums immediately after they start removing 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.
Many of the take out companies were formed after the 2004/2005 Florida 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 lead to problems estimating and paying claims on time.
The take out companies are very selective about the policies they take from Citizens - leaving the oldest, most poorly constructed coastal homes sitting right in the middle of hurricane alley still on the books of Citizens. This makes the Citizens book of business even more under funded than it was before the take outs.
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 beyond the takeout policies in their initial portfolio are more susceptible to financial collapse after a major 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 unwillingness to represent a particular company should at least cause a consumer to proceed with caution.
If you are a policyholder with Citizens Property Insurance and you receive a take out offer, here are the questions you should be asking your existing insurance agent - 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 complaints have been filed against that company for poor customer service.
How strong is the take out company financially? 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. Your agent is risking the loss of your commission by taking a position like this. See if your agent will tell you why their agency does not want to represent the new company. Your agent's answer might tell you all that you need to know to help you make a decision about whether to go with the new company.
Last but not least, you should ask your agent to see if there are any other companies besides the take out companies that might be interested in covering your Florida 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.
Remember, if you don't do any due diligence on these take out insurance companies, you will be the one who has to live with the consequences of an unpaid claim after the next Florida hurricane.
