Over the past few months, many Citizens Property Insurance policy holders received a notification that, unless they opted out within a certain time frame, their property insurance would be automatically transferred out of Citizens and into one of several small start-up insurance companies. These newly formed property insurance carriers have been nick-named “take-out” companies because their sole source of new business is to take over property insurance policies that have been transferred out of Citizens. This process has created a love/love relationship between Citizens and these new insurance companies as, through the transfer of policies out of Citizens and into these new start-ups, Citizens can further its goal of depopulating its customer base and the new start-ups get “free” customers without having to market for same.
Of course, all is not rosy for the actual policy holder. As a recent report reflected, the recent crop of small, in-state property insurance companies have no record of withstanding the losses associated with a major hurricane and have not fared well with insurance industry rankings. In fact, these new companies only average a “C-minus” rating by Weiss Ratings and 11 of these companies have failed since 2006 – without even having a major storm or hurricane to drive up the claims! According to the new Weiss Ratings, 19 of the 48 Florida-based property insurance companies received a rating of “D-minus” or worse, which is eye-opening in light of the fact that Florida homeowners pay about $6 billion dollars a year to these companies and we haven’t had a large scale insurable event in over a decade.
The take away is that, although you may not be thrilled with the coverage or level of service that you may be getting from Citizens Property Insurance, you had better think twice about switching to one of the new take-out companies. Despite all of its problems, Citizens does not have the failure risk of the small private companies and Citizens will always have the money to pay claims – even though it may take years to do so!