You may have purchased a homeowners insurance policy from Citizens Property Insurance because you couldn’t get comparably priced coverage (or coverage at all) with a private Florida insurance company. So sure, the rates are usually attractive, but is there a catch?
Florida’s real estate and insurance landscape is marked by its unique approach to property insurance, especially when it comes to the state insurer, Citizens Property Insurance Corporation. As a potential policyholder or a current one, understanding the nuances of Citizens’ assessments is crucial.
Since there are strings attached for all Florida policyholders, and especially Citizens Property Insurance policyholders if the state backed insurer runs out of money, it’s important to understand exactly what you might be on the hook for.
This article delves deep into the specifics of these assessments, their potential implications, and what it means for both Citizens and non-Citizens policyholders.
Citizens Property Insurance Corporation, often referred to simply as Citizens, stands as a beacon for many Florida property owners seeking insurance coverage. As a not-for-profit, tax-exempt government entity, its primary mission is to offer insurance protection to those Florida residents who face challenges in securing coverage from the private market. Established in response to the unavailability of affordable property insurance in Florida, Citizens serves as a safety net, ensuring that homeowners have access to essential property insurance, regardless of the market conditions.
The inception of Citizens was driven by the need to address the insurance void left by private insurers, especially after significant catastrophic events. Over the years, as hurricanes and other natural disasters struck Florida, many private insurers either hiked up their premiums or withdrew from the market altogether. This left a significant portion of homeowners in a lurch, unable to find affordable coverage. Citizens stepped in to fill this gap, ensuring that every Florida homeowner had an insurance option available to them.
However, while Citizens plays a crucial role in the Florida insurance landscape, it’s not without its complexities.
The financial structure of Citizens is such that its policyholders bear a significant responsibility. In the unique insurance framework of Florida, policyholders act as the guarantor of last resort. This means that if Citizens faces a financial shortfall, its policyholders are the first line of defense. They are subjected to assessments, which are additional charges over and above their regular premiums, to cover any deficits. If the deficit is too large to be covered by Citizens policyholders alone, the burden then shifts to other private market home insurance policyholders. And in extreme cases, where the deficit remains unresolved, Florida state law empowers Citizens to impose an assessment on all insurance policyholders in the state, covering a broad spectrum from auto insurance to renter’s insurance.
In essence, Citizens Property Insurance is more than just an insurance provider; it’s a testament to Florida’s commitment to ensuring that all its residents have access to property insurance. However, with this commitment comes a shared responsibility, where the collective pool of policyholders plays a pivotal role in ensuring the financial stability of the entity.
Citizens operates three distinct policy accounts: Coastal, Personal Lines, and Commercial Lines. Each of these accounts is financially independent, with separate claims-paying resources and capacities. In the event of a significant catastrophe, like a devastating storm or a series of smaller storms, one or more of these accounts could face a deficit. This deficit implies that Citizens might not have sufficient funds to settle all claims. If such a scenario arises, Florida law mandates Citizens to charge a series of assessments until the deficit is fully covered.
Who Bears the Brunt of Assessments?
Both Citizens and non-Citizens policyholders are liable to pay assessments. These assessments are over and above their regular policy premiums. Unlike private insurance entities, when Citizens exhausts its claims-paying funds, it is legally bound to levy assessments on its customers.
For those insured under Citizens, these assessments can be hefty. A Citizens policyholder’s assessment potential can soar up to 45% of the premium due to the Citizens Policyholder Surcharge. This surcharge is the primary means to offset a deficit. In contrast, private market policyholders are only subjected to the Regular Assessment, which can be a maximum of 2% of the premium.
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The assessment structure of Citizens is divided into three distinct tiers, each designed to address specific financial shortfalls:
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Citizens Policyholder Surcharge: This is the first line of defense against deficits. The surcharge can be levied up to 15% per account for each account that faces a deficit. If all three of Citizens’ accounts, namely Coastal, Personal Lines, and Commercial Lines, experience deficits, the cumulative surcharge can amount to 45% of the annual premium. It’s crucial for policyholders to be aware that this surcharge is in addition to their regular premium. Furthermore, there might be instances where additional surcharges, assessments, or other adjustments are applied to a Citizens policy, over and above the Citizens Policyholder Surcharge.
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Regular Assessment: This tier is activated if a deficit remains in the Coastal Account even after the full Citizens Policyholder Surcharge has been levied. The Regular Assessment is set at 2% and is applied to assessable policies in the private market. This includes a wide range of policies such as private-market homeowners policies, auto insurance, specialty insurance, and surplus lines policies.
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Emergency Assessment: This is the final tier and is invoked if a deficit persists in any of the accounts after the 2% Regular Assessment has been applied. The Emergency Assessment can be as high as 10% per account annually for each of Citizens’ three accounts. Both Citizens and non-Citizens policyholders are liable for this assessment. It’s worth noting that this assessment can be levied for as many years as necessary until the deficit is fully resolved.
The True Cost of Citizens Coverage
While Citizens provides a safety net for many Florida homeowners, it’s essential to understand the potential financial implications of being a policyholder. The assessment structure means that in the event of significant deficits, Citizens policyholders could face substantial additional costs. For instance, in the aftermath of a major disaster, the true cost of a Citizens policy can increase dramatically. Citizens policyholders can be assessed up to 45% of their total premium if additional funds are required to pay claims. In contrast, non-Citizens policyholders could face a much lower assessment rate of 2%. However, this does not factor in the potential for Citizens Emergency Assessments, which can be levied over multiple years at the same rate for both Citizens and non-Citizens policyholders.
Pro Tip: So for example, a Citizens policy might be 20% cheaper than a private insurer’s rate, but as a Citizens policyholder you are the first line of defense if Citizens doesn’t have enough money to cover claims after a catastrophic hurricane season. It’s important to factor that tail risk into your insurance buying decision!
The repercussions of failing to pay a Citizens assessment are multifaceted and can be severe:
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Lien Against Property: One of the significant consequences of non-payment is that Citizens may file a lien against your property. A lien is a legal claim or a “hold” on one’s property, making it collateral against the debt or assessment owed. This means that Citizens would have a legal right over your property, and if the assessment remains unpaid, they could potentially take your property to recover the owed amount.
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Legal Proceedings: If the assessment remains unpaid, Citizens may opt to take the matter to court. Should Citizens emerge victorious in the legal battle, the court could mandate you to pay not only the assessment but also the accrued interest and court-associated costs. This could substantially increase the amount you owe, further exacerbating the financial strain.
Moreover, non-payment might lead to the cancellation of the insurance policy, leaving the homeowner unprotected.
This is especially problematic for those with mortgages, as continuous insurance coverage is often a prerequisite set by lenders. Furthermore, a tarnished payment history could result in escalated premiums or even outright denial of coverage in the future.
In conclusion, while Citizens serves as a vital safety net for many Florida homeowners, it’s imperative for policyholders to be acutely aware of the financial responsibilities accompanying their coverage. Assessments, though essential for Citizens’ fiscal health, can be burdensome for homeowners.
Pro Tip: It’s no surprise that Miami and South Florida is expensive. Besides escalating insurance premiums, homeowners also have to worry about sky high property taxes. Learn more in our deep-dive on how much is property tax in Miami?
