Monday's expected launch of Citizens Property Insurance Corp.'s Property Insurance Clearinghouse in Florida will "moderately increase" private- and capital-market reinsurance demand and should "modestly help" lower the last-resort insurer's policy count, according to Fitch Ratings.
According to a Citizens statement, "On Monday, four private companies will begin offering policies to new applicants for homeowners coverage as part of Citizens' measured rollout of the clearinghouse system authorized by state lawmakers in 2013. Over the next five months, additional participating private-market insurers will be added to the list of approved-Florida companies able to offer property insurance to Citizens applicants."
Florida Gov. Rick Scott signed SB 1770 into law in May 2013, which established the clearinghouse designed to reduce the number of policies at the state's last-resort insurer. Through the clearinghouse, new and renewed policies will be shopped to private insurers before being placed with Citizens.
Citizens' statement explains, "Starting Monday, when a homeowner seeks new homeowners coverage with Citizens, their Citizens-appointed agent will enter their property information into the clearinghouse, which will seek offers of coverage from participating private-market companies. If a participating company offers a policy at a premium that is within 15 percent of the Citizens premium for comparable coverage, the applicant will be ineligible for Citizens coverage."
Fitch says of the clearinghouse launch, "This mechanism should modestly help reduce Citizens' size and could shift more business to Florida-only specialist insurers."
As the Florida-only companies tend to use more private-market reinsurance than either Citizens or more diversified insurers in Florida, reinsurance demand could potentially increase, says Fitch. However, the ratings agency adds that any pricing movement resulting from the increased demand will be "muted" due to continually increasing capacity in the reinsurance market from both traditional and non-traditional providers.
Donovan Brown, state government relations counsel for the Property Casualty Insurers Association of America (PCI), says of the clearinghouse launch, "Citizens has diligently worked with the industry over the last year to understand the industry's needs as it relates to the clearinghouse and to implement the system."
He adds, "PCI and its members are optimistic that the impending clearinghouse rollout, in conjunction with other traditional forms of policy take outs, will continue to drive down the policy count of Citizens and reduce consumers' potential exposure to a hurricane tax. Consumers should look forward to the day Citizens is returned to its true purpose as Florida's insurer of last resort."
In addition to creating the clearinghouse, SB 1770 also prevents Citizens from insuring homes valued at more than $1 million—a cap that gets lowered gradually until it reached $700,000 in 2017. New construction in high-risk, coastal areas after July 1, 2014 is also ineligible for coverage by Citizens.
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