Unbelievable But True: Policyholders Are Required to Pay For Other Insureds’ Losses!

Hurricane season is ramping up in the Atlantic, and the National Oceanic and Atmospheric Administration just modified its seasonal update increasing the predicted number of hurricanes this season.

Unbelievable But True:, Policyholders Are Required to Pay For Other Insureds' Losses! Unbelievable But True:, Policyholders Are Required to Pay For Other Insureds' Losses! - August Law

It is a good time to inform everyone of how all policyholders in Florida are potentially exposed to pay for other people’s losses. When I first read that policyholders in Florida could be surcharged by Citizens Insurance Company to pay for hurricane damage to other policyholders, I did not believe it. But it is true.

Citizens Insurance Company acts as Florida’s “insurer of last resort.” Essentially, this means that when all the other insurance companies will not write the risk on a property, Citizens must – ensuring that everyone has access to hurricane insurance to get mortgages on their properties.

The problem is that based on the actuarial models, Citizens may have to pay more in claims than they can afford regardless of its reinsurance treaties. Just two significant hurricanes could plunge the company into insolvency.

To counteract this, Florida has authorized Citizens to levy a surcharge on its policyholders, up to 15% across three accounts, to offset losses from other policies.

If Tampa gets hit by a hurricane, I may have to pay for those losses because I have insurance for my properties in Key West. This is not about raising premiums for next year; this is about an actual surcharge on an existing policy. And if all the Citizens policyholders cannot cover the loss, Citizens can surcharge other carriers’ policyholders 2%. If that still does not cover the cost, Citizens can further surcharge its policyholders 10% per year until it recovers its losses.

If you are as shocked as I was or in disbelief, read the explanation from Citizens directly: https://www.citizensfla.com/-/citizens-assessments-florida-s-hurricane-tax-.

If you have to carry insurance because of a mortgage or do not want to self-insure your risk, you must keep paying these surcharges.

As a licensed insurance agent, real estate agent, and attorney in Florida and Michigan, this issue fascinates me. This predicament necessitates federal intervention. It’s not exclusive to Florida; all Gulf Coast and Atlantic states face similar vulnerabilities. If we don’t address this proactively, homeownership simply will not be possible for a large percentage of the population.

Don’t be surprised if Florida gets hit hard this year and Citizens surcharges everyone. You read it here first!

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