Everything You Need to Know About Citizens

As an insurance advisor in Florida, I frequently get asked about Citizens Insurance. Every time, I explain the crucial role Citizens plays in providing coverage to homeowners who might otherwise go uninsured. However, I've been asked this question so often that I decided to write about it to highlight some potential drawbacks of their policies. By understanding these issues, you can make an informed decision about your insurance needs and explore alternative options that might better suit your circumstances. To stay updated on topics and trends in the personal insurance space, please subscribe to my newsletter!

Citizens' Role and Limitations

Citizens Property Insurance Corporation was established in 2002 by the Florida Legislature to provide affordable property insurance to eligible Florida property owners unable to find coverage in the private market. Unlike private insurers, Citizens is a tax-exempt, non-profit government entity. While this allows Citizens to offer coverage when other options aren't available, it also comes with several limitations.

Financial Stability Concerns

One major concern with Citizens is the lack of reinsurance. Reinsurance is a critical safety net that private insurers use to protect themselves from catastrophic losses. Without this, Citizens might struggle financially in the wake of a major disaster. In such an event, Citizens policyholders could face significant surcharges. For instance, if a devastating storm leaves Citizens in a deficit, policyholders could be hit with a Citizens Policyholder Surcharge of up to 15% of their annual premium. Additionally, policyholders might be required to pay up to 45% of their premium within 30 days or risk having their policies canceled.

Coverage and Claims Processing

Citizens’ maximum liability is capped at $100,000, with a maximum dwelling coverage of $700,000. This might not be sufficient for homeowners with more valuable properties. Furthermore, Citizens lacks certain endorsements commonly available in the private market. For example, they exclude losses resulting from water backing up from sewers or drains or sump pump overflows. This could leave policyholders vulnerable to uncovered damages.

Another significant issue is the potential for slower claims processing. As a state-run entity, Citizens might not have the same level of customer service and efficiency as private insurers. This can lead to longer wait times for claims processing and repairs, especially after widespread disasters when quick response times are crucial.

Shifting Demographics and Premium Pressures

Originally, Citizens was designed to serve as a last resort for those who could not obtain insurance elsewhere. However, due to rising premiums in the private market, many homeowners are now turning to Citizens not out of necessity, but as a means to avoid the escalating costs. This shift has led to an increase in policyholders and, consequently, a higher risk exposure for Citizens. The increased burden on Citizens could impact their ability to respond efficiently and maintain financial stability, especially during catastrophic events.

Depopulation Program and Policy Transfers

Citizens also participates in "depopulation" programs, where policies are transferred from Citizens to private insurers. This program, authorized by the Florida Legislature, aims to reduce the number of policies and the exposure Citizens currently assumes. While this helps stabilize Citizens’ risk, it can be disruptive for policyholders, who might find themselves shifted to new insurers without much choice in the matter. This can lead to confusion and uncertainty about coverage and policy terms.

Future Requirements and Recommendations

By 2027, all Citizens customers will be required to have flood insurance. This is an important consideration for those evaluating long-term costs and coverage needs.

Given these factors, it's wise to consider alternatives. Private insurers usually offer more comprehensive coverage options, quicker claims processing, and better customer service. They also typically include endorsements for situations like water backup from sewers and drains, which Citizens does not cover. While Citizens is competitive on price, it's important to remember that cost shouldn't be the only factor in choosing your coverage.

Conclusion

While Citizens Property Insurance Corp plays a unique and necessary role in Florida's property insurance market, it's important to consider the potential drawbacks of relying solely on their coverage. By exploring private insurance options, you can find a policy that offers greater financial stability, comprehensive coverage, and better customer service. If you have any questions or need assistance in evaluating your insurance options, visit my profile and click the request services button. I'm here to help you find the best coverage to protect your home and peace of mind. If you still need to, subscribe to my newsletter to stay up to date on all things personal insurance.