Private Insurers Shying Away from Commercial Market

By Stephen Mostella, CPCU

When most people hear about the growth at Citizens Property Insurance in Florida, they think of personal lines policies, also known as homeowners insurance. Though commercial lines policies – coverage for retail stores, office buildings, and condo complexes – still account for only 1% of Citizens’ policy count they make up 23% of inforce premiums ($962 million) and 21% of total inforce exposure, or $112 billion in risk. ?

While the company’s homeowners policy count is trending down, which is good for the market, the commercial lines count is rapidly ascending, which is not so good. The number of commercial applications submitted to Citizens underwriters in 2023 matched those from the previous nine years combined, from 2014-2022.

Several factors caused this 340% increase in incoming work, the commercial policy count to grow by 107%, written premiums to grow by 296%, and exposure to grow by 248% in 2023.

The property insurance industry goes through cycles, ranging from “hard markets,” with higher premiums, restricted coverages, and fewer insurers, to “soft markets,” featuring lower premiums, more coverages available, and more insurers. Florida is in a hard commercial market right now.

So let me explain a few more reasons and discuss what it means for Citizens and the market overall.

‘Hard Market’ Driving Policies From Private Insurers

Industry pundits point to a convergence of factors, including the higher cost of reinsurance – insurance that insurance companies buy to guard against unexpected losses, like from hurricanes. They also talk about factors like inflation, higher claims costs, and those weather losses, as primary causes of the current hard market.

Thus, many commercial property owners are increasingly looking to Citizens, which the Florida Legislature created only to be an insurer of last resort. Citizens writes two types of commercial policies: nonresidential, which includes retail stores, and residential, such as condominium complexes.

Condominium buildings line the coast in many of Florida’s heavily populated counties, and some of these properties, such as those that are older or lack proper maintenance, are struggling the most to find coverage with an admitted insurer.

Citizens writes policies for condominiums that cover the shell of the buildings. The size of condominium buildings can vary significantly, and the larger ones require thorough underwriting. The largest written in 2023 is valued at $316 million.

As Citizens Copes, There Is Hope for More Private Insurers

The higher volume of these larger, more complex properties Citizens received in 2023 put immense pressure on the company’s underwriters. More than 20 individuals from our personal lines and quality improvement teams helped commercial lines underwriters for several months to try to help the company overcome the fast influx of work.

In anticipation of more commercial policy growth in 2024, Citizens is hiring 12 new commercial underwriters.

Many unpredictable factors, such as weather and inflation, influence how long the hard market may last. I remember reading several years ago that the average hard market lasts about three or more years, but I doubt anyone would try to put a number on this current hard market as it depends on when carriers can begin seeing improved financial results.

Even though the hard market is expected to continue through 2024, there is one positive sign for Citizens and the market. An insurer named Condo Owners Reciprocal Exchange (CORE) will take from Citizens through its depopulation program intended to encourage the private market more than 400 commercial policies in late February. CORE is planning to depopulate another 400 more policies in April.

Citizens’ underwriters will continue to focus on ensuring that all risks are appropriately underwritten and approving only those that are eligible until the hard market softens or private insurers begin to remove policies from the company.

Stephen is the Vice President of Underwriting at Citizens Property Insurance Corporation