Take-Out Insurance

If you use or have considered the state of Florida’s insurer Citizens for your wind or multi-peril property insurance chances are good that in recent months you have heard the term ‘take-out company’ or that you will soon hear it. Citizens, the state’s market of last resort that was greatly expanded following 1992’s Hurricane Andrew and that offers wind and property insurance in our state, has been aggressively working to reduce the number of policies that it writes in hopes of moving such policies into private insurers and off Citizens books so as to reduce its and the state’s liability to losses in the event of a large storm or two.

Understanding this ‘take out’ process and your options will allow you  to make the most informed choices possible in your protection in what continues to be a volatile state when it comes to wind and property insurance. As you scroll down through today’s blog you will find that I have tried to explain not only what is happening but key aspects of the actual ‘take out process’, your options and, finally, a few things to consider concerning whether moving your policy from Citizens is a good idea.

Why Is Citizens ‘Ordering’ & Offering Take-Outs?

First, however, to understand why the state (Citizens) is so aggressively looking to reduce the number of policies it writes it might be helpful to understand the core issue; the size and scope of Citizens and the exposure its policies place on the state as well as its policyholders. As I write this blog it has been nine years since a large hurricane hit our state and while the property market has not seen the return of historically well known, household, ‘name’ insurers (and likely will not, in my view, ever see that happen given the extreme exposures in certain regions, such as South Florida) a logical person would expect that the property market for wind insurance has improved. The numbers, however, illustrate that in recent years, even without a storm, the market actually, in some ways, has gotten worse.

Consider that as of December 31, 2004, some ten years ago, Citizens wrote ‘just’ 873,996 policies that had a collective $ 206 Billion in exposure (the total coverage limits from those policies) and that they collected $ 1.234 Billion in premium that year. A year later, at the end of 2005, the year of both Hurricane Katrina and Hurricane Wilma hit Florida, the policy count actually reduced to 810,017.

In 2006 insurers reacted to both Wilma and Katrina and Citizens ballooned to 1,298,922 policies and some $ 408 Billion in insured exposure by December 31st. Thus, as the impact of (principally) those two storms settled in on the domestic primary insurers and global reinsurance industry chaos commenced and Citizens grew by 488,905 policies (60%) and more than doubled the amount of exposure it faced than was the case just two years earlier.

By 2011 the number of policies Citizens wrote nearly touched 1,500,000, easily making it Florida’s largest home insurance company by a wide margin and creating insured exposures to loss that exceeded ½ a trillion dollars with nearly, it seemed, no end in sight. As I have written about in the past, much of Citizens growth over time can be traced to many ‘direct writing insurers’ such as Allstate, State Farm, Prudential and others non-renewing policies to reduce their exposure to Florida losses or leaving the state entirely. Agents that work with or for Direct Writer’s typically have limited to no other choices beyond the one company that they represent and when their insurers left Florida, or reduced the number of policies that they would write, their agents were forced to move their client’s into Florida’s insurer of last resort, Citizens.

Depopulation Program Solution

By 2012 many folks at Citizens, the Department of Financial Services and elsewhere had begun to worry that a large storm or two could threaten Citizen’s existence and perhaps even bankrupt the state of Florida. Faced with a growing and staggering risk the state dusted off its ‘Depopulation Program’ that provides incentives to private insurers (and policyholders) to take over existing Citizens policies by taking them away, or out (thus the term take-out) of Citizens and promising to provide coverage for a set period of time at agreed rates and without the surcharges that have always been imbedded in a Citizens policy as well as, typically, at least somewhat better coverage.

Here is how Citizens explains the Depopulation (Take Out) program:

Florida law requires Citizens Property Insurance Corporation (Citizens) to create programs to help return Citizens policies to the private market and reduce the risk of additional assessments for all Floridians. The Depopulation program accomplishes this goal by working with private-market insurance companies that would like to offer coverage to Citizens policyholders. The programs are subject to the approval of the Office of Insurance Regulation.

Policyholders whose policies are selected by these companies are sent a letter notifying them of the pending assumption and providing instructions on how they can elect (opt out) to remain with Citizens, if eligible and should they wish to do so. Policyholders who do not opt out within the opt-out timeframe will receive a Notice of Assumption and Non-Renewal and a Certificate of Assumption. They may have an additional timeframe from receipt of this notice to elect to remain with Citizens.

Here is a summary of the number of policies written by Citizens in recent years as well as how much coverage (exposure) that have at risk and the premiums paid during this time frame. As you can see, the recent Depopulation, ‘take-out’, program has reduced the number of policies in half as we approached year end 2014 as compared to 2011’s staggering figures. The exposure’s at risk have also been dramatically reduced.

Year Policies in Force Total Insured Exposure Total Premium
12/31/2011 1,472,391 $ 510,675,120,930.00 $ 3,071,857,743.00
12/31/2012 1,314,811 $ 429,424,399,130.00 $ 2,820,878,387.00
12/31/2013 1,021,694 $ 318,887,485,544.00 $ 2,292,364,533.00
11/30/2014   727,122 $ 229,406,440,506.00  

Citizens will give heads-up to policyholders marked for ‘takeout’


How Strong Is Florida’s ‘Revived’ Homeowners Market


A closer look at 5 insurers taking a big chunk of Citizens Property Insurance policies


When Insurance
Is Too Good To Be True


Encouragement Letter


Notice of Assumption


Citizens Opt-Out Confirmation



What Happened In 2014?

In November 2014 14 insurers offered to assume personal policies from tens of thousands of Floridians followed by three insurers offering in December to take on thousands of commercial policies. Last month another ‘round’ of take-out offers were sent to tens of thousands of Florida policyholders by eight private insurers. Through November 2014, some 185,405 policies have been ‘assumed’, moved from Citizens to an approved ‘take-out’ insurer. As the chart above illustrates, Citizens efforts to reduce its exposures were successful this year.

What Will Happen in 2015?

And there is more to come…

On January 6th 2015 two insurers, Heritage and United P&C, began approaching selected commercial policyholders and offer to write their coverage.

On January 13th, 2015 seven private insurers (Anchor, Avatar, Cypress, Heritage, Mount Beacon, Prepared and Southern Oak) will approach tens of thousands of policyholders and offer to take over, take out, their policies.

Last year when I enjoyed lunch with Citizen’s Chairman he expressed that he felt confident that as long as Citizens remained aggressive in finding private insurers to write as many policies as possible that the total number of policies could likely be reduced to about 500,000. His thinking was that some policies, whether based on location, construction, age or other factors would not be likely to find a private solution and thus Citizens would likely remain viable for such policies in the years to come.

How Does The ‘Take-Out’ Process Work
& What Are My Options?

The process of having your policy selected by a private take-out company and the decision that you need to take so as to either accept or reject the offer is a bit cumbersome but is one that the fine professional Agent’s and Underwriters here at Morris & Reynolds can gladly help you navigate. As an overview, here is how the current Citizens process is designed and operates:

  • Insurers review the policies that Citizens currently writes and select from those the policies that best meet the insurer’s business goals and objectives.
  • The private, ‘Take-Out’, company then sends you a letter announcing that it will ‘assume’ your policy, outlining when, explaining why they would like to write your coverage as well as informing you that you have the right to either accept or reject their assumption of your coverage.
  • Citizens then sends you a follow up letter informing you of the private insurers interest in writing your policy and outlining why you might want to consider using the new insurer (including avoiding Citizens surcharges, likely having broader coverage and being able to retain your current agent) and that should you want to leave Citizens you need do nothing more as your policy will automatically move to the new insurer.
  • Within 30 days of the ‘Assumption Date’ by the new insurer you can decide to remain with Citizens and reject the assumption by the new insurer. To reject the new insurer’s offer you must complete and sign what is called an ‘Opt Out Form’ (meaning you are opting out of the private insurer’s offer and electing to stay with Citizens). In the instance of Personal Residential (but not policies written for and only for the peril of Windstorm) policies once you have provided the Opt Out Form to Citizens (via your agent) Citizens will send you a Confirmation Letter of your decision that includes the following wording:
    You have requested to not participate in the [TAKEOUT COMPANY] assumption. Therefore, the Citizens ‘Notice of Non-Renewal’ and the ‘Certification of Assumption’ have been withdrawn, effective immediately. Your policy with Citizens shall be reinstated and a renewal offer will be made to you by Citizens. Citizens will agree to keep the original effective date once payment is received.
  • In the event that you elect to leave Citizens and become insured by the new, private, ‘take-out’ company you need do nothing as the policy will automatically be insured with the private insurer as of the Assumption Date and will be renewed by that company as of your Renewal Date.
  • As reference, to the right you will find sample letters of some of the correspondence Citizens and the private ‘take out’ insurers are using.

So What Should I Do?

Some of the Positives & Possible Negatives

As the number of ‘assumption’ letters and the private insurers writing them increase it has become common for our client’s to ask for our opinion of what they should do. Here are a few thoughts to consider in the event that your policy is ‘assumed’ and you want to evaluate whether to move to the new insurer or retain Citizens.

Some Positives:

As noted above, many newer (some brand new) insurers are seeking policies from Citizens and Citizens is attempting to have these newer insurers ‘take out’ such policies so as to reduce their (Citizens’) exposure to losses. The ‘take-out’ insurance companies are ‘admitted’ insurers and thus do not have the assessment possibility that every Citizens policy includes. Furthermore, as an ‘Admitted’ insurer they are protected by the Florida Insurance Guarantee Association (FIGA), the state’s guarantee fund for admitted insurers.

  • Citizens polices have always included an ability for the insurer (Citizens) to assess their policyholder after a loss. In fact, Citizens has three levels of possible assessments that you could pay in addition to your premium including:
    I) Citizens Policyholder Surcharge
    • One-time assessment
    • Citizens policyholders only
    Up to 45 percent of premium
    II) Regular Assessment
    • One-time assessment
    • Private-market policyholders, including, but not limited to homeowners, auto, and specialty and surplus lines policies
    • Up to 2 percent of the remaining shortfall
    III) Emergency Assessment
    • Single- or multiyear assessment
    • Citizens and private-market policyholders
    • Up to 30 percent of premium per year until any remaining deficit is eliminated
    Private, admitted, insurers do not have the ability to bill their policyholders for such assessments and thus the lack of possible assessments from private insurers is an advantage over Citizens.
  • The private take-out insurer will often offer better, broader, coverage in at least some areas as compared to Citizens. Most of the take-out insurers are including a chart that compares their coverage to the limited coverage Citizens offers and it is wise to review that chart to see how your prospective new policy would compare.
  • The private insurer is what is called an ‘admitted’ insurer and as a result of being an ‘admitted insurer’ they are regulated by the Florida Department of Financial Services and within that the Department of Insurance.
  • Admitted insurers are also protected by a state program, the Florida Insurance Guarantee Association (FIGA), which is the state’s guarantee fund. FIGA protects admitted insurers and thus is a safety net for its policy holders in the event the private ‘take-out’ company should fail to meet its obligations, due to insolvency. Here is what FIGA provides:
    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. Claims not covered by FIGA may be claims against the remaining assets (estate) of the insurance company and will be considered after all covered claims have been processed.
  • It is also helpful to know that when an insurer selects policies to be removed from Citizens it does so based on studying the impact of those policies on its overall book of business, its reinsurance (the insurance that insurers carry so as to protect themselves and their clients) and, of course, their own balance sheet. It is fair to say that none of these insurers offer to take on any of these policies with the intent of not paying claims, or for that matter of going out of business, following a large scale disaster.

Some Possible Negatives:

Understandably the most common question, however, that our client’s ask is not about assessments or broader coverage or other such things but what will happen in the event of a large scale disaster (or two). Most folks want to know whether the take-out insurer will survive a monster storm (or two) and be able to pay their claims and that is, frankly, a rather sobering question to consider. Here are a few things related to that question to consider:

  • The fact of the matter is that most (but not all) of the take-out insurers are young, some of them very young. Many are so new that they did not exist the last time the wind in our state blew from a large named storm and thus they have never paid a hurricane claim.
    The state’s process in recent years, some say rush, to move hundreds of thousands of policies into what are often newer, untested, insurers makes many uncomfortable. In my case, I grew up and into this industry prior to Hurricane Andrew at a time when just about every major, well known, insurer in America happily wanted all of the property insurance it could write in our state. Rates were low, capacity was abundant and insurers fell over themselves wanting business. Those same insurers paid their debts and I rarely worried about their ability to stay in business.
    Times are (much) different today in a market dominated by so many newer, or brand new, insurers whose names are foreign and in many cases have never experienced a hurricane. Gone (for the most part) are the days of the largest name brand insurer’s in the County freely writing home insurance with windstorm and thus it is as or more important than ever to carefully scrutinize your insurer, not just the premium they want to charge but their finances, independent ratings and even their reinsurance.
    For perspective I’d suggest reading the article from 2012’s Tampa Bay Times entitled A Closer Look At Five Insurers Taking A Big Chunk of Citizens Property Insurance Policies. You can find it to the right or by clicking here.
  • Many (most even) of these newer insurers are not rated by the historically larger, unbiased, rating agencies such as A.M. Best & Company, Standard & Poor’s, Moody’s, Weiss or Fitch and that concerns me. The Rating Agencies, are typically very conservative in their views and provide a decent benchmark of the ability of an insurance company to pay its claims and while a newer insurer might tout what is called a ‘Demotech’ rating I’d not confuse that with the opinion (or lack there-of) from the largest and oldest rating agencies on the planet.
    Speaking of articles, I’d also suggest that you might want to read the September 2014 article that appeared in the Insurance Journal, a trade publication, entitled How Strong Is Florida’s ‘Revised’ Homeowner’s Market? That article begins with the following statement:
    As Florida seeks to revive its private home insurance market after almost a decade without a hurricane, homeowners are pouring $6 billion a year in premiums into a new generation of small, in-state insurance companies with an unproven record of withstanding a major hurricane.
    You can find it to the right or by clicking here.
    And while reading, allow me to suggest our own newsletter, When Insurance Is Too Good To Be True, and the comments I wrote about a former take-out insurer by the name of Poe Financial Group that failed a number of years ago and in the process ‘hurt’ a number of homeowners as well as condominium associations. You can also find it to the right or by clicking right here.

The speed and size of the current ‘take out’ process should lead us all to pause but more importantly to closely review every aspect of any prospective insurer including, perhaps, their independent rating and reinsurance. Over time the process and the insurers involved may work perfectly. In the short term the process has certainly reduced the size and scope of Citizens, removed many people’s exposure to possible assessments and provided them better, broader, coverage. All strong positives to say the least.

It is also possible that some of the newer insurers today could, and likely will, very well become industry leaders in the years and decades ahead. Of course, as long as the wind does not blow everything will be fine. Our best advice today is the same as has been the case for 65 years; whenever you are reviewing your insurance options, it pays to understand the process, the insurers involved in it and to make wise, informed, choices that best meet your goals in protecting your assets.

Along the way please know that the fine folks here at Morris & Reynolds will be happy to help you navigate the ‘take-out’ menu, answer your questions and, of course, obtain every possible option for your consideration.

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