Florida's weather has historically created an environment that makes insurance companies cringe. Between hurricanes and tornados, the risks associated with writing homeowner's insurance in Florida are bad enough to have caused several companies to become insolvent, and several others to simply leave the state. As a result, the Florida State Legislature recognized the dire situation for homeowners as the number of insurance companies began to dwindle. In answer to this problem, the Legislature created an insurance company in 2002 that would be fully owned and operated by the State of Florida called Citizens Property Insurance Corporation.
Citizens Homeowners Insurance in Florida was initially created as a safeguard to provide coverage to homeowners that could not find coverage in the standard market. It was recognized that as underwriting practices became more stringent, some homeowners would have a difficult time finding coverage.
Initially, Citizens could only charge its customers a rate comparable to the highest rates allowed to any private insurer in the state. The idea then was to prevent a situation where a government funded and/or subsidized entity would be competing with private companies. This would clearly create a situation of unfairness. Agents were not even allowed to write a customer with Citizens if some other private insurer would accept the risk.
In the early part of 2007, this all changed. Agents can now write a customer with Citizens as long as they cannot find a private insurer that is less than 15 percent higher than the rate charged by Citizens.
As the market gets more difficult for private insurance companies however, Citizens Property Insurance Corporation has become the only source of property insurance for many Floridians. Additionally, new laws allow policyholders of Citizens to remain with the company even when a private insurer assumes a group of risks from Citizens. Before the change, when a private insurer took over risks from Citizens, policyholders had to move to the new carrier.
These new rules and the difficult market have placed severe financial strains on Citizens homeowner's insurance in Florida. Recent reports indicate that the insurer has shed more than 26 percent of its customers, but that the number of employees has risen by 17 percent. High salaries have been identified as a source of their financial troubles, but Citizens contends that salaries must be kept at competitive levels to attract qualified people to run the company.
Insurance regulators noted in 2009 that the company's rates were not high enough for the company to remain solvent. In order to correct this problem, the insurer was required to raise its rates by 10 percent every year for the next five years. This will net a nearly 60 percent increase overall, but the plan was to address the problem incrementally so that the market does not get shocked by a sudden large increase.
Citizens is not the only insurer in Florida raising its rates. Most private insurers plan on rate increases of 10 to 15 percent in 2010, making it more important than ever for homeowners to take advantage of all the internet has to offer in terms of comparison pricing, and to take advantage of all possible discounts.