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this is "Facing South Florida" with Jim DeFede.
>>Welcome to "Facing South Florida."
I'm Jim DeFede, and we turn our attention
to the devastation from Hurricane Ian.
Those communities on the west coast of Florida
will be forever changed by the storm,
and countless lives altered.
Listen to the pain in this woman's voice
the day after the storm tore through her home in Fort Myers.
>>Being so hardworking honestly doesn't matter.
It just is destroyed and it's ruined,
and then you have to start all over again.
And honestly, where do you start?
How do you start in this?
>>It is those who have the least that suffer the worst
after a storm like this.
If you wanna help, you can donate
to Neighbors 4 Neighbors.
You can text HurricaneIan to 41444.
You can also visit neighbors4neighbors.org/hurrica.
Now I wanna turn to the impact this storm is likely to have
on the state's already broken insurance system.
Initial estimates say this storm is likely to cost
upwards of $40 billion in claims.
This will almost certainly bankrupt
a number of insurance companies,
driving more and more Floridians into Citizens Insurance.
The insurer of last resort in Florida.
After the storm, I spoke to Barry Gilway,
the CEO of Citizens Insurance.
When a storm like this hits, it has a reverberation
throughout the insurance market here in Florida.
We are likely to see insurance companies,
private insurance companies, leaving the state of Florida
as a result of this storm.
Some of them will go insolvent,
some of them will just not wanna even come in.
No new companies may come in.
What is the net effect likely to be on Citizens?
I know that you had been trying to keep the number
of policy holders in Citizens down.
I think it had gotten down to six or 700,000.
It's now up slightly around a million policy holders.
I think it was before this storm
projected to maybe get upwards of 1,000,005
before the end of next year.
I've talked to some legislators who think
you're gonna end up with 2 million policies
in the next year or so.
Do you agree?
>>It could be that high, Jim.
So the numbers basically are,
we started out at 1.5 million policies in 2012.
We got all the way down to 400,000 policies
by the end of 2015.
So 1.5 down to about 400,000 policies,
and then we've been growing ever since.
Obviously exacerbated by the now seven insolvencies
that we've had over the last 18 months.
And so we're adding policies at this point
at the rate of net increase
of about 10,000 policies per week.
So we're growing substantially,
some of it from the insolvent companies,
but much of it from companies that, as you indicated,
that have just chosen to shut down new business.
There's simply we're not writing any more new business
until the legislature fixes the litigation crisis
that we have going in the state.
>>Now, I'm going to sort of use myself as an example here,
but I think what I've experienced is indicative
of both the benefit of Citizens
and the risk that Citizens continues to take on.
I was in Weston up until about a month and a half ago.
Weston Insurance went outta business.
They decided to pack up and leave.
My insurance brokers then went and searched around,
and the only place they could find insurance for me
was within Citizens.
So I'm now covered by Citizens.
But one of the things that I noticed is that
my private insurance was about twice as much
as my Citizens insurance.
And so while I'm grateful to be paying less,
I recognize though that the reality is
that Citizens, my Citizens policy,
from a business standpoint,
is probably not actuarially sound.
In other words, you're probably not collecting the money
you need to collect to have a solid business performance.
And as a result, you're at a higher risk.
Am I sort of encapsulating it correctly?
>>Absolutely, and one of the biggest issues
that we have here, Jim,
is that we are not actuarially sound.
Even after the limited rate increase
that was approved by OIR,
which really amounted to 7.8% overall,
we're still 30.7% below the actuarially sound level.
And more to your point, what's happening now
is these insolvent carriers that were significantly
higher priced than Citizens
and they still went out of business,
they're coming into Citizens.
And frankly, when they come into Citizens,
they're getting a 20, 30% reduction in premium.
So we're probably under priced in the marketplace
by at least 30% overall.
>>But that has two effects.
One, it makes Citizens itself more at risk
for these types of storms.
But two, because Citizens is so much less,
other companies don't wanna come in and compete
because there's no competition with you because as a result,
nobody can compete with the prices that you're...
In other words, I'm paying for Citizens.
I couldn't get that deal at State Farm
I'd be paying much more.
Now I'm not asking you to raise my rates,
and the problem that you're facing is
your rates are set by the legislature to a large extent,
and there is no way that the legislature
is going to raise rates 10, 20, 30%
to get you to being actuarially sound.
So what I'm wondering is, are you basically just waiting
to get one more storm than you can handle
and then you're gonna be insolvent?
>>So I mean, I think you've got
a very, very good picture, Jim, of the overall environment.
Number one, we are ridiculously under priced.
So what happens is if an investor comes in
and they want to do a depopulation,
which should be a great deal for an investor, right?
Because no acquisition costs,
and we just basically open up the doors
and they choose your business, then but insureds,
investors and insureds, you know, realize
that if they go with the new insurer,
they may be paying higher premiums.
So it really restricts the interest
of investors to come in.
And there's another issue too,
and that is there's a consumer choice statute
that basically says, you know, Jim, you don't have to go.
So if a depopulation company comes in,
an investor comes in and says,
"I wanna pick up your policy, Jim,"
you have the choice to say, no, I don't wanna go.
>>If it's more than what?
If it's more than 20% of what I'm currently paying?
So in other words, I'll just use State Farm as an example.
If State Farm were to come in and come to Citizens say,
we'd like to take, you know, maybe we're looking to pick up
a hundred thousand of your policies
and shift them over to us.
And I'm one of them, you know,
but if my rate is gonna go up by more than 20%
by going with State Farm, by being moved into State Farm,
I have the right to say no and I get to stay with Citizens.
And as a result,
but because there's such a growing disparity,
you're now at 30, 40, some people estimate even 50%
of a disparity between what you should be charging
and what private companies are charging,
that as a result you're not able to move.
Nobody's coming in to ask that
because nobody's gonna move over.
Is that the issue?
>>No, I think you have the picture completely correct, Jim.
I think the problem that we have right now
is that obviously new investors right now are not coming in.
Depopulation, other than a very, very small amount,
has just stopped because investors are not coming in
at this point for two reasons.
Number one, the pricing of the Citizens product,
and they have to compete with that pricing
in order to attract you as a customer.
But secondly, the litigation.
I mean, litigation is still absolutely ridiculous.
What's the incentive for the attorney to settle?
The longer they have that claim open,
the longer they can charge fees.
So the attorneys basically, they fail to...
I mean, I think the current length of time
is 740 days to settle a suit.
740 days.
So insurers are sitting there, you know, for over two years
trying to, you know, get these suits through court.
So what happens?
In order to stop the fees, the insurance company settles.
Doesn't have to go to court.
The insurance company settles.
And as soon as they settle for a dollar more,
then they pay all the plaintiff costs.
>>It's good that you are confident
that you have what you need to deal with this storm,
but we're still early in the hurricane season
and, you know, we don't know how active it's gonna be
and maybe the next storm does go into Tampa Bay
or does hit South Florida.
Is Citizens prepared to meet all of its obligations
one way or another if a storm comes
and plows through us here in South Florida?
>>So what the issue is here, Jim, right,
is that we try to avoid going through our surplus
because if we go through our surplus,
then we have the ability to assess
first step policy holders, and then secondly,
the entire Florida base of $56 billion.
So our intent in terms of putting a program together
is to do everything in our power
to avoid an assessment level.
Right now, this storm alone will leave us
in the personal lines account, if these numbers are correct,
with about a billion dollars worth of surplus.
>>So there will be no need for an...
So right now with the numbers that you're seeing,
you do not believe there will be a need for an assessment.
In other words, essentially taxing your policy holders
an additional fee to make up for shortages.
You don't anticipate any assessments right now?
>>We do not.
However, I wanna jump on the point you made
'cause it's a good one, and this is what we explained
to our board also, if that second storm comes along
and there is one forming right now off the coast of Africa,
you know, if that second call comes along,
if we had another Ian, that would be an assessable event
without any question whatsoever
because of the the personal lines account particularly.
But coastal account, we're in really good shape,
but we have to manage these accounts
statutorily very separately.
So the coastal account would still be in good shape.
>>And the bottom line is, no matter what,
people should anticipate
whether they're in private insurance or in Citizens,
their rates going up next year, correct?
>>Yes. I mean, Citizens, obviously,
we're gonna file for the maximum rate level
that is allowed just to try and catch up with the market.
But you made the point earlier, Jim,
our issue is the private companies, as you know,
are going up 20, 30, 40%.
Statutorily, we were restricted to 7.8%.
That's all that OIR allowed.
So we're getting further and further and further
behind the industry relative to our overall rate level.
So, you know, we need relief relative to allowing us
to go higher from a rate standpoint,
and then someone's gotta fix the ultimate cause.
This is all around the edges.
We've gotta fix the problem, right?
Just throwing more and more and more rate at this.
We already got the highest rates in the country.
What, $4,200 is the average rate in Florida,
but we've gotta fix the problem and the legislature
has got to fix the underlying problem.
>>So why hasn't the state legislature
dealt with this crisis?
When we come back, we talk to state Senator Jeff Brandes.
And as we go to break, here again is the information
if you wanna help those in need on the west coast.