TALLAHASSEE, Fla. – State-owned Citizens Property Insurance Corp. will have to reduce homeowner insurance rates for at least 50,486 South Florida policyholders after state insurance regulators refused to approve the company’s bid to hike rates by 10.8% for all of its customers.

Not all South Florida policyholders will see rate reductions. But hundreds of thousands of tri-county homeowners that rely on the “insurer of last resort” when they cannot find affordable coverage in the private market could see increases lower than originally proposed by the company in December.

On Friday, Florida Insurance Commissioner David Altmaier signed orders finalizing Citizens’ rates for new and renewing customers, effective on Sept. 1, but not before rejecting the company’s bid for an across-the-board increase of nearly 11%, the maximum increase allowed by state law.

Instead, Citizens’ rate hike will average 6.4% for its multiperil homeowner policies.

The average rate increase for dwelling/fire coverage was reduced from 10.8% to 8.4%. Rate hikes for most of Citizens’ other lines of business were approved at or near rates proposed by the company, including its hurricane coverage, which will increase by an average 9.8%.

Carlos Beruff, chair of Citizens’ Board of Governors, convinced fellow board members on Dec. 15 to seek the maximum increase and disregard recommendations from the company’s staff to vary rate increases between 0% and 11% based on individual risk characteristics of various policies.

If Citizens’ staff’s recommendations were adopted, increases would have averaged 8%. But that recommendation still differed from Citizens’ historical method of setting rate changes because it proposed that no homeowner’s rate be lowered.

In past years, the company has proposed rate changes that fall between 10% and 11%, as allowed under state law. That has typically resulted in the reduction of a small percentage of rates each year when warranted by changes to those properties’ risk profiles, such as lower claims costs or litigation rates in their particular territories.

Altmaier’s order requires Citizens to abandon the rate-hike recommendations that would have prevented any rate decreases. Instead, it must return to its historical rate-setting method that requires rate decreases of up to 10% where warranted.

At least 56,887 Florida policyholders deserve lower rates next year, according to a Citizens’ estimate developed by request of the Office of Insurance Regulation. Of those, 50,486 are in Broward, Miami-Dade and Palm Beach counties. Rate reductions are warranted for the 50,486 South Florida policyholders because of a “drop in the very high litigation rates in that area,” a note below the chart states. While the number of lawsuits against Citizens increased overall between Jan. 1 and April 30, the percentage of lawsuits originating in South Florida declined from 87% to 75%, a chart presented to the company’s Claims Committee last week shows.

Citizens’ rate-reduction projections were based on the overall number of policies – 623,873 – in effect when the company submitted its rate filing in December. Since then, the company’s policy count has swelled to 906,532, suggesting that even more South Florida policyholders could see their rates decrease. How much they might save, and how the total is spread across Broward, Miami-Dade and Palm Beach counties, was not identified in the document.

In an interview, Citizens spokesman Michael Peltier said the company will be calculating effects of the order and have new rates in place by the Sept. 1 start of the new rate term.

While tens of thousands of Citizens’ South Florida customers will see their rates decrease, that doesn’t necessarily mean their premiums will decrease. Inflation and supply chain issues in the construction industry has forced Citizens and most other insurers to increase the replacement value of many customers’ homes, upon which their rates are multiplied to come up with their premium.

That means that even for homes that qualify for lower rates, their higher replacement values could drive up their premiums anyway.

Beruff recommended the 11% across-the-board rate hike out of a concern that Citizens has grown too large. As private market companies fail outright or decline to write new policies to reduce their exposure, board members, legislators, and insurance market watchdogs have warned that state law requires nearly all insurance customers in Florida to pay special assessments if Citizens runs out of money before paying all claims after a natural disaster.

Restricted by state law from increasing rates beyond a companywide average of 11% this year, Citizens has warned that its rates have become too attractive to policyholders compared to private market companies that have raised their rates at much higher percentages over the past few years.

If Citizens was a private market insurer and not restricted by state law from increasing rates beyond an average 11%, it would have required a 37.5% average rate hike next year to remain a financially sound operation, the company’s documents show.

Floridians pay the highest average property insurance premium in the nation – $4,231 – nearly triple the national average of $1,544, said Mark Friedlander, director of communications for the industry-funded Insurance Information Institute. He blamed the increase on fraudulent roof replacement claims and excessive litigation against insurers, noting that Citizens has seen a 12% increase in litigated claims this year. Much of that increase is originating in the Tampa area, where litigious roofing companies are most active.

Citizens’ board of governors recently approved adding $50 million for defense costs, Friedlander noted, adding, “It seems like their rate filing for 2022 was justified.”

Litigation rates have always been highest in South Florida, which has driven rates higher there than anywhere else except for the Keys. So if litigation declines in South Florida compared to the rest of the state, it makes sense that insurance costs should be reduced as well.

Insurance agent Dulce Suarez-Resinick, vice president of sales and marketing for NCF Insurance Associates in Miami, has long disputed Citizens’ claim that it’s significantly cheaper than private market insurance.

Based on policy quote comparisons for her clients, Suarez-Resnick has often found Citizens to be the most expensive option, she said.

She pointed to a home in northern Broward County, east of Interstate 95, that Citizens proposed to insure for $10,062, including wind coverage. A private market competitor, Florida Family, priced a comparable policy at $7,839.

“We need the rate decreases,” Suarez-Resnick said. “We had two [Citizens rate] increase in the last 12 months – August 1, 2021, and Feb. 1, 2022. We need some relief down here.”

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