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Home Insurers Head for Higher Ground

Private underwriters drop coastal clients, leaving Citizens to assume greater risk.

Published: Monday, July 23, 2007 at 6:00 a.m.
Last Modified: Monday, July 23, 2007 at 6:30 a.m.

Property insurance companies in Florida are increasingly picking and choosing the kind of risk they want to insure - and it's all inland and safe.

That means Florida taxpayers are left on the hook for hurricanes, as the state's risky coastal properties get stuck with the state-run insurer.

It's called cherry-picking.

And it's different from the cherry-picking that Gov. Charlie Crist campaigned against last summer. He meant insurers who choose to write other types of insurance, like auto, without writing homeowner's.

This cherry-picking has pushed record numbers of policies into Citizens Property Insurance Corp., the ever-expanding state-backed insurer whose policies are also growing inland and could hit the 2 million mark early next year. That figure represents nearly 40 percent of Florida's homeowner insurance market, a saturation level by a government-run company that is unprecedented in state history.

State Farm Florida became the latest to announce such a move last week when the company said it will drop 50,000 coastal policies in favor of writing an equal number farther inland.

"Obviously it means increased numbers and increased risk for Citizens, and really all citizens with a small C," said Sen. Bill Posey, R-Rockledge, chairman of the Senate Insurance Committee, who also used "cherry-picking" to describe State Farm's move.

An analysis of how Citizens policies are concentrated shows that the state-backed insurer rules the coastline, especially in the most vulnerable hurricane areas of southeast and southwest Florida. And it means Citizens has become, in effect, a statewide hurricane buffer of sorts, protecting private insurers concentrating more in Florida's interior.

"We are the main writer along the coast," said Paul Palumbo, Citizens vice president for underwriting.

That's happening, Palumbo explained, because private insurers have the ability to manage their risk exposure and create underwriting guidelines that earn the companies a profit.

"But those are things we can't do," Palumbo said. "We can't not write older or lower value homes, homes on the coast or mobile homes. That's why we end up highly concentrated on the coast and with the older, lower value homes.

"That's the risk the voluntary carriers tend to stay away from."

Not only does Citizens now insure most of the homes along the coast, but the company is also seeping into the interior of the state, for largely the same reason. No one wants to write the policies.

More than 80 percent of Citizens' new business is away from the coast.

Put another way, in July 2005, Citizens insured about 412,000 policies in its coastal account, and about 331,000 policies further inland. Today, Citizens has roughly the same number of policies in its coastal account (418,000), but nearly three times as many policies (878,000) outside of it.

"Our business outside the coast is by far the biggest revenue producer, and that's never happened in the past," said Citizens spokesman Rocky Scott. "And we don't see any indication that trend will change."

The vast majority of those new inland policies coming to Citizens, Scott said, are not coming because rates are cheaper. "It's because no one else is writing."

Crist, when asked last week if he was concerned about the rampant growth of the state's insurer of last resort, replied, "No, I'm delighted. That's exactly the point.

"We wanted Citizens to be more competitive. It wasn't competitive before. It was the dumping ground for insurance policies in the state of Florida. It was the most expensive; it was the highest risk."

Some think Florida is in a better position than private companies to take on the greatest risk, at least in the short term.

"Florida can do two things the private market can't - raise a lot of money quickly, and defer the risk until after an event such as a hurricane," said George Grawe, general counsel for Allstate Floridian Insurance and chairman of the Florida Insurance Council's executive committee.

"The greater issue is where are we going to come up with the capital to insure the exposure that exists in Florida?"

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