Citizens Insurance May Be Bad, But Consider the Alternatives

Beatrice Garcia has an article in today’s Miami Herald about Citizens Insurance company, the state-sponsored home insurer of last resort for those of us in the hurricane belt. See Is Citizens Insurance ready for the big one?

Citizens is known for its high rates, DMV-quality service, and for being under-capitalized. It is not much fun to deal with, but then neither is my bank. (Which, come to think of it, is also state-capitalized these days.)

The article does a good job of noting some of the issues with Citizens:

Citizens is the largest insurer in Florida, covering 1,057,829 homes, condos and apartment buildings. The biggest chunk of its policies — $232.1 billion worth — are written on riskier, coastal properties.

Insurance regulators, legislators and critics of Citizens say the company's frozen rates aren't actuarially sound. In laymen's terms, that means the insurer is not bringing in enough money through premiums to cover the bulk of the potential losses it could face after a huge storm.

To get Citizens' rates back on course, a law passed in May requires the insurer to raise rates 10 percent a year over the next five years. The smaller annual increases soften the rate shock for homeowners. But eventually, rates could end up about 60 percent higher.

But Citizens isn't totally in dire straits. The insurer should have nearly $3.9 billion in cash in the bank by the end of the year, says Binnun.

Add in a guarantee from the State of Florida to buy $750 million of Citizens bonds, a bank credit line and proceeds from municipal bonds it has already sold and the total of available funds comes to $6.9 billion.

Citizens also buys back-up insurance from the Florida Hurricane Catastrophe Fund to cover some of the losses it might face. This year, it purchased nearly $9.8 billion in coverage.

All that gives Citizens the ability to cover up to $16.8 billion in claims.

But even with all the funds it could tap, Citizens could fall short if “the big one'' — that one-in-100-years storm — hits the state. Such a storm could rack up claims totaling about $22 billion, Binnun says.

In other words, Citizens need to save up another $3.2 billion — about double what it will have in the bank by the end of the year –- in order to be actuarially sound. That’s a lot of money, but if it could save that amount since its founding in 2002, it should be able to pile it up in a few more years. Unfortunately, it's going to do that by raising our already quite substantial insurance rates some 10% per year until the money pile is big enough.

The Herald article more or less assumes that private insurance would be better, although it notes that some private policies have coverage limitations.

As it happens, I have a Citizens policy. Over the last three years I’ve had two letters from private insurance companies announcing they were taking over my policy unless I opted out (this was a state plan to encourage people to leave Citizens). One look at the capitalization of those companies and I opted out. In addition, my insurance agent has sent me proposals from three or four private companies, all but one of them started recently under the new Florida law encouraging companies to enter the market. None has a track record. None has much capital either. They are not rated by any of the major rating agencies (except one, that had a not-so-great grade of BBB-). They have their own ratings bureau, one which says they are just fine thank you, but it's not one I feel any reason to believe.

Unfortunately, in this era of light regulation private insurance is not inevitably better than public; indeed, I think some of these new tiny companies may be worse. This is, in fact, the ironic implication of a new analysis of the state home insurance market from the Competitive Enterprise Institute which shows how poorly capitalized the new private insurers really are. (CEI is not a source I’d rely on uncritically, but it confirms what I’ve worked out myself from looking up reports on the new Florida-only insurance companies. For more see Florida insurance numbers deceive and Consumers cry foul over Citizens' shift to low-rated firms.)

From the point of view of the homeowner, private insurers also have a degree of political risk that Citizens lacks: If they go belly up, the state has no moral obligation to bail them out — on the other hand, we have good reason to believe that at the end of the day the state (or the taxpayers) will stand behind Citizens.

I turned down my insurance agent’s suggestion that I go private, even though the proposed rates were a few dollars lower than what Citizens charged. My agent was all for it, claiming the service would be better (no word on the relative commissions!). The risk seemed too great.

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17 Responses to Citizens Insurance May Be Bad, But Consider the Alternatives

  1. Joe1 says:

    The insurance companies will scam anybody, if given a chance. If they will boldy lie to a law professor, then think of the stories they tell to homeowners with high school diplomas.

  2. King of Cats says:

    “From the point of view of the homeowner, private insurers also have a degree of political risk that Citizens lacks: If they go belly up, the state has no moral obligation to bail them out — on the other hand, we have good reason to believe that at the end of the day the state (or the taxpayers) will stand behind Citizens.

    I turned down my insurance agent’s suggestion that I go private, even though the proposed rates were a few dollars lower than what Citizens charged. My agent was all for it, claiming the service would be better (no word on the relative commissions!). The risk seemed too great.”

    Explain how you calculate the risk to your property.

  3. michael says:

    The risk to my property is unaffected by my choice of insurance company.

    The risk I was weighing was the danger that the insurer might not be able to pay in the event of a state-wide catastrophe.

    Both Citizens and the new insurance companies are seriously under-capitalized. Neither is geographically diversified. The differences are

    1. Citizens is big; they are small. There will be greater political pressure to make good its promises. (“Too big to fail,” anyone?)

    2. Citizens is public; they are private. The pressure will be harder to ignore for a state-run nonprofit body than for small, private profit-making firms.

    3. CItizens likely will eventually be properly capitalized; I have no such confidence for these under-the-radar firms whose regulators don’t seem to require they have sufficient funds.

    4. Even though Citizens is currently undercapitalized, it does have quite a lot of cash, and some reinsurance too. So it can ride out a disaster that is less than enormous. It’s not obvious to me the small firms can do even that.

    • w jackson says:

      I believe what you are missing here is the surcharge to all policy holders in the event of a catastrophic loss @ what could be as high as 48% due and payable! Quite impressive throwing a bunch of numbers out there. What is the number that Citizens policy holders will be paying out when they are hit with that surcharge? Not to mention what the private policy holders at 15% will have to pay to cover the losses?! The fact that private insurers are under funded?, the companies that are admitted to the state have reinsurance in the amount to cover their policies.
      I think you probably do some better research if you ask me Michael. You are not totally fact based here.

      • I believe what you are missing is the size of Citizens’ asset pool is much larger than it used to be while the claim pool has shrunk radically. Citizens has $12+bn in assets. Yes, it has a greater paper exposure, but what are the odds the every single policy in the state–all half million of them — will be subject to the same event? That wasn’t the case in any past hurricane. They don’t blanket the state.

        Plus even though Citizens has a much greater cash pile than previously, it also has fewer policies — half of what it had five years ago. So I rate the odds of a surcharge as low — much lower than 10 years ago, when the reserves were not nearly as high as today. Indeed it may be near zero. Today Citizens itself estimates — for the first time — that “Citizens can now handle a 1-in-100 year storm along the coast without having to levy assessments on Florida policyholders.”.

        So who is it that is not fact-based here?

  4. Keith Byrnes says:

    I had some water damage on my moble home in Micco, Florida, which is in Barvard County. I have at least @15,000 in damages which was caused when Hirrican Fay dumped over 16 inch of rain in 3 days. In my policy, I have a $1,000 deductable. I had roof damage, carport damage, water leakage, which damaged wall panales etc. I received a check for only $1,040.00. I am still trying to money form the insurance Company. What will happen when a good size harrican comes in with damaging winds, and destroyes my moble home to the extent, where it needs to be rebuilt. Maybe, the insurance Company will pay me another $1,000 dollars! Who are they kidding! They do not want to pay out for losses. Where do people go to; if insurance companies refuse to pay for losses due to Hirrican losses?

  5. michael says:

    Was that Citizens? Or one of those tiny companies?

  6. Reid Holzworth says:

    I am a Licensed Agent in the state of Florida and work for the largest broker in the state. Our main business is Home Insurance. Before I became an Agent I worked for 10 years on the construction side as a subcontractor for a national insurance restoration company (Repairing Homes Due to Claims).I can tell you that they are the worst company to work with. I can go on and on about how they do business when it comes time to paying claims. I don’t want you to take my word for it. All you have to do is just call any large restoration company that does residential and ask them which companies take care of there customers and which ones don’t.

    There are two rating systems when it comes to insurance. AM Best and Demo Tec.
    AM Best are the Big Companies like Nationwide, Liberty, Florida Family, ASI, Bankers, Pure, Chubb, Allstate, State Farm, Etc, Etc, Etc,. Demo Tec Companies are St Johns, Universal, United, Tower Hill, Sunshine State, Etc, Etc, Etc,. Here is a long but, good article about the difference.

    All state admitted carriers are reinsured by AM Best companies. Like Lloyds of London who has been in business for over 300 years and is one of the largest insurance companies in the world. Lloyds is a good example because they have global exposure which means that if Florida has 10 hurricanes back to back the rest of the world is still paying their bills.

    Ok so let’s say that you have Tower Hill as your insurance Company (who has been in business for over 30 years) and they go out of business. They have Reinsurance with Lloyds to back them up.

    Let’s say that Lloyds goes out of business due to their exposure in Florida after being in business for over 300 years and being one of the largest insurance companies in the world. (LOL)

    This is the Best Part; Because Tower Hill is a “State Admitted Carrier” they are backed by the Florida Insurance Guaranty Association for 300k per home.

    Now it gets interesting,

    What is Citizens Rating? Who are there reinsures? Are they state Admitted?

    Guess what? If Citizens was a private company they would not be aloud to write insurance in the state of Florida due to their financial stability alone. 15bilion in cash, 500 billion in exposure, = big problem.

    Citizens was developed to be a last resort for people that could not find insurance with any one else, and that’s it. It’s like buying a Kia and expecting it to perform like a Maserati. There is a time and a place for every thing. We write business with Citizens when needed and they are good for that market but, if there is a better option we will recommend the better option.

    About the commission comment. Citizens commissions schedule is the same as every one else. Some times even more depending on the area. Another bonus to push Citizens would be; knowing that Citizens was just approved for the rate increase for all policies of 10% which would mean that I would get a 10% raise on my commission next year. So if your agent was recommending some one else that was less expensive he was taking a loss on your behalf. If you are questioning your agents ethics than get another agent. Our company has a lot of good relation ships with captive companies like State Farm that can no longer write home insurance and do not recommend Citizens as a good option. To me that’s keeping the customers best interest in mind.

    • Norm Levesque says:

      Tower may have been good at one time but now they’re dirt bags. I’ve been a good, cash paying homeowner insurance customer for about 3 years. I
      recently chose to enroll in Tower Hill on-line automatic payment plan providing my
      checking account number. I mistakenly transposed a couple numbers in the
      account when I filled out the online enrollment form. When the bill went to the bank, it got kicked back for an unknown account number. Tower Hill cancelled my policy without a phone call or email even though they had this information on file. I found out 45 days later when they had the nerve to send me a “balance due” bill after cancellation. They refused to reinstate my policy even with full payment and full current year payment. Very poor / impersonal business practices. Thank god I didn’t have to fight for a claim with these jerks. They changed their name from Royal Palm Insurance to Tower Hill. By any name they are a bad business.

    • Rob says:

      Ditto, Reid Holzworth. You all should also check out this link that explains how Citizens assessments work. If it were me, I would not want to be First in line:

  7. Julie in FL says:

    I tried to click on Reid’s link to the Insurance Journal article above and it was no longer available. I did a little tricky Googling pulled the text from the cached version of this article. I am posting the text here so that it is available for posterity. (FYI: to do this yourself, copy a link/URL into Google and click on “cached” to pull the last known version of the webpage up.)

    –Julie in FL

    The Ratings Game
    By Kevin B. O’Reilly | May 19, 2003

    Every day, agents and brokers use financial strength ratings of insurers in their business. A carrier’s ratings may affect an agent’s ability to place risks with that insurer, or the client’s willingness to be insured by a vulnerable carrier, given the client’s tolerance for risk.

    The bottom line for agents is they hope the ratings issued for a carrier by the major ratings agenciesÑand in some cases smaller agencies devoted to niche, regional carriersÑcan tell them something about the likelihood of their clients’ claims being paid and, ultimately, avoid the pain associated with an insurer insolvency.

    The hardened market has affected the ratings game in a number of ways and made life much harder for agents, in spite of higher commissions. First, though one would think the higher premiums and stricter underwriting characteristic of the hardened market would lead to an industry-wide trend of upgrades, that hasn’t been the case.

    By contrast, downgrades have outpaced upgrades at all the major ratings agencies. The standard-bearer in the insurance ratings game, A.M. Best Co., has seen downgrades outpace upgrades by five to one in the last year, according to Karen Horvath, vice president of commercial property/casualty ratings.

    Fitch Ratings, meanwhile, has seen “very few upgrades,” according to Keith Buckley, managing director of insurance at Fitch. Over half of the universe of carriers has been downgraded by Fitch in the last 18 months, Buckley said.

    Large carriers have been hit by huge asbestos and environmental claims that have forced them to re-examine their potential liabilities and strengthen their reserves. Most famously, commercial lines leader AIG took a $1.8 billion charge in February to boost its reserves.

    There are several reasons commonly cited by credit analysts for the wave of carrier downgrades: an over reliance on reinsurance relative to assets, loss of reserve adequacy, a weakening credit market, and lower surpluses due to underwriting and investment losses. Paradoxically, carriers’ ratings are now beginning to reflect the ravages of the soft market on their financial strength. The hardened market so far has not done enough to help most recover.

    “One of the core aspects of our rating is it’s intended to look through a normal cycle,” Buckley said. “The soft market really took a toll on a lot of companies in terms of reserving and balance sheet integrity, and did permanent damage to many companies. Raising premiums is not a ratings event, because in a cyclical industry that should be expected.

    “Where we will see upgrades,” Buckley added, “is if companies take actions to really strengthen capital in the long term, or in the case of a harder market if smaller competitors fall by the wayside; if they improve market share without sacrificing price, doing it the right way by being a stronger competitor able to take advantage of the opportunities available to it. … We’re not really thinking in terms of how they’ll do in next two years of hard market, but how will they be positioned to avoid the problems of inevitable soft markets. We’ll need to see some seasoning of that over the duration of the hard market before we feel comfortable that they’ll do well in a soft market.”

    A.M. Best’s Horvath echoed the sentiment. “We’re in a hard market,” she said, “but I don’t think the benefits of that hard market have really caught up with insurers. That means improved rates and tightened underwriting conditions haven’t been able to offset weak underlying conditions of the most recent soft market. Reserving issues and the 1997 through 2001 accident years have really outpaced the benefits of improved underwriting.

    “We’re seeing a decline in surplus when volume for many carriers is increasing,” Horvath added. “That’s not just the result of lots of dislocation. There’s actually a lot of new business coming to insurers, and that growth of exposure has an impact when you have a decline in surplus. It’s not supported by the capital they have.”

    Steve Dreyer, practice leader for North American insurance ratings at Standard & Poor’s, sees much the same trends accounting for why S&P’s has downgraded so many carriers in spite of the hardened

    Reserve additions that have exceeded industry norms, mostly in commercial lines, workers’ compensation, directors and ommissions, have been major culprits, Dreyer said.

    Under reserving is a “ubiquitous concern,” according to Bob Hartwig, chief economist for the Insurance Information Institute. He said various sources have estimated the P/C industry is under reserved as a whole between $38 billion and $55 billion, not including asbestos liabilities.

    Ratings agencies under pressure
    “On the face of it, it would seem there should be more ratings upgrades,” Hartwig said, noting the paradox of downgrades in the hardened market. “More insurers fail or simply go out of business during market peaks and shortly thereafter as opposed to in the depths of the soft market. That’s simply because there’s a lag before a company goes under. They are weakened to the point where even the hard market can’t save it.”

    Claims on state guaranty funds skyrocketed during the last hard market of the mid-1980s, Hartwig noted. In addition, there is a “lot more pressure on analysts, including analysts at ratings agencies,” in light of the huge financial scandals of 2001 and 2002. “They prefer to err on the side of the caution.” he added. No one wants to have missed the next Enron.

    “Ratings in fact, some will say, are a lagging indicator as opposed to a leading indicator many believe they should be,” Hartwig said. “While the ratings function is very important it does miss a fair number of companies. It’s not perfect. A fair number of companies that have been weakened maintain ‘A’-grade ratings up until the day they file for insolvency.”

    Hartwig said that despite a 14 percent increase in premiums
    written, the P/C industry still only managed a one percent return
    on equity.

    “If ever there were proof,” Hartwig said, “that it would be recklessly premature to allow this hard market to end, that’s it. In the past, there has been this situation where prices are dropping so that they’re at rates that are below the rate needed to afford them. Rate increases proceed for a small number of years and there’s no plateau, it’s the edge of a cliff.”

    That is why, Hartwig said, so many insolvencies occur in the later part of a hardened market. Whether we have already begun to see that is a matter for debate. A study by the Alliance of American Insurers showed that payments by private insurers to state P/C guaranty funds hit a 15-year high in 2001, the last year for which data were available, thanks to increased insolvencies. Thirty-two state funds levied $739 million in 2001 assessments, according to the study.

    The amount of reinsurance purchased by primary reinsurers is another concern driving down ratings, Hartwig said. Moody’s Investors Service, for example, issued 150 downgrades of reinsurers in 2002, compared to only three upgrades, but reinsurance recoverables as a percentage of primary insurers’ assets increased from 10 to 14 percent between 1999 and 2002.

    Rupert Hall, CEO of Stockton, Calif.-based Golden Bear Insurance Co., said the caliber of reinsurance is a major concern when looking at a carrier’s financial health. It all boils down to the simple question, he said, of “Who’s going to be around to pay the losses? Who’s going to survive?”

    Downgrade mania?
    Not everyone is enamored of how the major ratings agencies have handled their charge. In an April 10 story in Forbes Magazine, Richard Lehmann said the ratings agencies have had a “downgrade bias” since the early 1980s, which he called a “perverse trend.”

    “Some will argue,” Lehmann wrote, “that the companies themselves are to blame for this credit deterioration because they took on too much debt. While there is some truth to this charge, I believe the credit agencies’ role needs to be reevaluated. The agencies are simply too negative.

    “Downgrades,” he added, “have the distorting effect of raising a company’s borrowing costs. And any problems that a company has are only magnified by the downgrade.”

    Joseph Petrelli, president of niche carrier ratings agency Demotech Inc., says the major ratings agencies’ actions are often counterintuitive.

    “Let’s say a company has a very high rating with one of the other folks,” Petrelli said. “The company strengthens its loss reserves and then the rating goes down. If they had a good rating when under reserved, why do they get penalized for being appropriately reserved? It’s silly to penalize a company for putting money in its reserves, where it belongs.”

    Additionally, Petrelli claimed that Demotech focuses more on the strength of a carrier’s balance sheet than its income statement. Demotech also rates carriers regardless of size, for an affordable price, unlike S&P’s, which recently stopped wooing Golden Bear Insurance Co. as a client. The S&P’s Dreyer said that while his agency rates companies regardless of size, smaller carriers often find the fee “prohibitive,” in spite of a sliding scale.

    “The other ratings agencies are particularly enamored with size,” Petrelli said. “Bigger’s almost always better. We don’t subscribe to that theory. A small, well-managed company is a better risk than a large, scattered company with more dependence on a variety of reinsurances, and carrying more risk.”

    Demotech’s financial stability ratings attempt to gauge the likelihood of a carrier’s solvency for the next 18 months, which is the time period most agents and brokers care about. Demotech’s analysis is usually based on data from the National Association of Insurance Commissioners.

    Agents most reliant on A.M. Best
    Still, A.M. Best is the ratings agency producers rely on most. It has a long track record and focuses entirely on the insurance industry, unlike Moody’s, Fitch, S&P’s, Hoover’s Ratings or Weiss Ratings. Best’s Horvath described agents and brokers as the company’s “heaviest users.”

    Most state insurance departments’ producer licensing exams still refer exclusively to A.M. Best as the source for financial strength ratings of carriers, and many errors and omissions policies that cover agents and brokers require them to place business with carriers rated above a certain threshold by A.M. Best, in particular.

    A typical example is the E&O policy that insures the Houston-based brokerage of Brady, Chapman, Holland & Associates (BCH).

    The policy excludes coverage for the insured brokerage in case of insolvency unless, “at the time the insurance placed the subject risk with any of the above-described entities, such entity or entities were rated by A.M. Best as ‘B+’ or higher, or alternatively such entities were guaranteed by a governmental body or bodies and/or operated by a governmental body or bodies.”

    The “B+” (very good) rating from A.M. Best falls on the low end of its “secure ratings” category, below which carriers fall into the “vulnerable” category of “B” and lower. Charles E. Comiskey, a broker with BCH who testifies often on behalf of E&O carriers against agents and brokers, said a downgrade can cause lots of legal trouble for a producer.

    It’s a hassle to place risks with new carriers after a material downgrade, he said, but “you’re buying an E&O claimant if you don’t get off your butt and do it.” Comiskey told of one case in which he was asked to testify on behalf of an agent who talked to his insured about a carrier’s drop in rating from “A-” to “B+,” but took no action.

    “He let it run for several months until expiration,” Comiskey explained.” “Now two or three years later it’s suddenly going to trial and the carrier is not in business anymore. The claim is against the agent. Even though I was hired to testify for the carrier, I think it’s better to cut your losses and run than to go through all the trouble. The agent thought it would be safe to let coverage ride, but it turned out to be a fatal error.”

    Importance of ratings varies with agency
    Still, for some agencies, ratings have definitely become a secondary factor, given the market conditions, according to Scott Hauge, president of San Francisco-based CAL Insurance & Associates, which specializes in commercial lines for small and medium-sized business.

    “It’s an interesting situation for an agent to be put into,” he said. “Right now, certainly in California and around the country rates are going up dramatically and the clients and particularly small businesses are feeling the pinch of higher rates. A lot of them don’t care [about ratings]. They’ve never gone through a bankrupt insurance company. They’re in a situation of survival mode. If you come to them with a ‘B+’ versus an ‘A’-rated … they just can’t afford any more. They’re looking for ways to survive.”

    There are many cases where CAL’s clients are subcontractors on larger municipal projects and the prime contractor requires an “A”-rated carrier certification, Hauge said. But if there’s any flexibility for his clients, they will take the lower-rated carrier if there’s a difference in premium.

    As with so many aspects of the insurance business, how agencies operate depends on who their target market is. Rebecca Korach Woan, principal at Chicago’s Chartwell Insurance Services, will begin to question a rating even if it drops to only an “A-” A.M. Best rating. But that makes sense, given that Chartwell’s specialty is P/C coverage for high net-worth individuals.

    “If a carrier gets an ‘A-’ from Best, we’ll look at Weiss, which seems to be a little more conservative,” Woan said. Otherwise, “there will be some fallout from the insured who just doesn’t want to take that risk, where some claims may take years to settle.

    “It’s a hard market,” Woan added, “and we definitely have to work a lot harder just to place business with ‘A’-rated companies.” Woan said a lot of Chartwell’s business has now been placed with surplus lines carriers.

    Hauge also has often turned to surplus lines companies, though no such company not “A”-rated will receive any of CAL’s business, because the security of the state’s market conduct review and guaranty fund is not there.

    For Woan’s clients, even the guaranty fund is not enough. “When you consider what the guaranty fund is in IllinoisÑ$300,000Ñthat’s not much security. It doesn’t give you much comfort in terms of dealing with a company with a poor financial rating.”

    The Boy Scout motto, “Be prepared,” might apply to Woan’s approach, and the approach of any good agent, when evaluating a company’s financial strength with the aid of ratings.

    “It never comes as a surprise,” Woan said. “You anticipate the condition of the company and you run your book down so you’re not caught with any exposure with a company that’s going south quickly.”

    Ultimately, ratings can only do so much for an agent or broker, according to Paul F. Sherbine, a credit analyst at Marsh. “The key to remember is that this is just one tool,” he said. “The industry has to estimate risk 50 to 100 years out. It’s … unquantifiable.”

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  8. Rachel says:

    Got scammed by Tower Hill back in 2004. Lawn Equipement stolen from front yard inside locked trailer. Said they only had to pay 10%. We were distraught and in a bad state of mind. We found out later that since we were not incorporated and self proprietor, they were supposed to pag 100% (minus depreciation of course… one mower was brand new.). We got 2500 of the 25,000 of our 33,000 dollars of equipment that was stolen. Lawyers said that since we cashed the check (even under great distress), we could not go after Tower Hill for the rest of what they owed us.

    As if this was not enough, they sent us a letter that they were not doing business in Florida anymore and dropped us… only to find out that this was a lie also. We ended up payjng three times as much for insurance. We now have new lower policy, but ins co. will not allow us to have a pool (even though it it fenced in three times from intruders). Ins co. telling us how we can live our lives. Health issues and letter from doc stating I need pool for exercise has not helped. They do not care and because we have mortgage, we are stuck! We feelmlike we are prisoners in our own home because ofmthe ins co.

    Tower Hiill —– BAD company… We of course were stupid to “trust” them to pay us what they owed… never never never again! Please beware. If you have a claim, you are well advised to seek a lawyer before dealing with ins companies.

  9. Chris says:

    Recently wanted to lower my homeowners coverage through citizens and was Informed by my AAA agent that many of the results she had seen were higher premiums after the reconstruction cost eval was done by citizens. Citizens exclusively uses an ePAS 360Value cost estimator. I was told by my agent that the underwriter gave alternate means of valuating the reconstruction cost, such as a licensed contractor’s estimate, a property appraiser, or home inspector, but that citizens would still use their valuation if it ended up higher than what I submitted. This practice seems very unethical as the 360 eval system could be essentially price fixing. I am researching this now to draft a letter to the insuance commision of Florida and was looking for any comments. Thanks, Chris

  10. Burke says:

    Just stumbled upon this article and the posts are interesting. What Michael fails to mention and what Reid clarifies, is that the smaller private insurers (Tower Hills, St Johns…etc..) are backed by the state guaranty fund, whereas Citizens is not. If a large hurricane were to come through Florida, and you have a Citizens policy, good luck getting paid within a couple years (if at all). Citizens is one of the worst insurers to do business with and being a licensed agent in Florida, it’s like they only hire high school dropouts and ex-cons. Choose a company like Tower Hill, ASI, or Sunshine State and you have a much greater chance of getting paid on claims.

    • Interesting point. According to the Florida Insurance Guaranty Association, there are coverage limits, but they are not as bad as I thought:

      If your insurance company has been declared insolvent, covered claims will be paid by FIGA. The maximum amount FIGA will cover is $300,000 with special limits applying to (1) damages to structure and contents on homeowners’ claims and (2) on condominium and homeowners’ association claims. For damages to structure and contents on homeowners’ claims the FIGA cap is an additional $200,000. For condominium and homeowners’ association claims the cap will be the lessor of policy limits or $100,000 multiplied by the number of units in the association. No claim will be paid in excess of this cap. All claims are subject to a $100 FIGA deductible in addition to any deductible identified in your policy. You may file a claim against the assets of the insurance company estate for the $100 deductible and for amounts over the cap. The Receiver will send proof of claim forms and instructions for filing a claim.

    • Tower Hill got downgraded by AM Best to a “D” in 2009, and now appears to be (?) unrated. How does one check if they are covered by the guarantee? Are there any circumstances in which they might not be? More generally does it really make sense to get insurance from a company with that risk profile?

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