Why Florida residents may soon pay a 'hurricane tax'

Citizens, Florida’s last-resort home insurance plan, may be one storm away from exhausting its surplus funds.

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Myles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a senior reporter and certified personal finance counselor at Policygenius, where he covers insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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Citizens Property Insurance is warning policyholders that they may face a “hurricane tax” if it runs out of money. The state-run insurance group covers Florida residents and businesses that have been denied coverage on the private market. With several private insurance companies in Florida exiting the state or going out of business the last few years, Citizens is now the state’s largest home insurance provider.

The problem is that Citizens isn’t financially equipped to take on that much risk. If a bad storm hits the state and Citizens doesn’t have enough money to pay out claims, the state requires them to charge an assessment that could potentially hit every home or auto insurance policyholder in the state — even those without Citizens policies. Here’s what to expect from a possible assessment, which critics are calling a hurricane tax.

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Latest on Florida's home insurance crisis

With insurance companies limiting their coverage or leaving Florida, it can be difficult to track which insurance options are (and aren't) available. To help Florida homeowners navigate this complex situation, we put together a roundup of the latest and most pressing insurance news from across the state.

  • Farmers Insurance no longer selling new policies (July 2023)

  • AAA not renewing some policies in high-risk areas (July 2023)

  • AIG no longer selling or renewing policies (March 2022)

  • Progressive no longer selling new policies (April 2022)

Florida homeowners can use Policygenius to compare home insurance quotes from several companies, including the Citizens, Universal Property, and Slide Insurance.

What it would take to trigger a ‘hurricane tax’

Citizens policies fall into three buckets: coastal, personal lines, and commercial lines. The lines are each financially independent of one another. If any line experiences a deficit, Citizens is required to charge an assessment.

Personal lines are responsible for most of the growth Citizens has experienced the past few years, says Charles Nyce, a professor of risk management and insurance at Florida State University. After the 2022 hurricane season drained almost $1.2 billion from the personal lines account surplus, Citizens started this year with just a $420 million surplus. 

“When that balance hits zero, they will need to do an assessment,” Nyce says.

While the damage from Hurricane Idalia was relatively limited because it made landfall in a less populated area, Nyce believes the next “halfway decent-sized storm” will trigger an assessment. There’s still time for that storm this year — the 2023 Atlantic hurricane season runs until Nov. 30.

How much will it cost?

If the personal lines account has a deficit, Citizens policyholders could be charged up to 15% of their total premium ($150 on annual premium of $1,000). If that doesn’t cover the deficit, Citizens can assess a fee of up to 2% of premium on every property and casualty policy sold in Florida, except for workers’ compensation and medical malpractice policies. If an assessment is necessary, it’s likely that Citizens will use bonds to pay off the deficit and then use assessments to repay them over time, Nyce says.

The assessment may come as a shock to many Florida residents.

“I don’t believe most Floridians understand that these assessments can be done,” Nyce says. 

The previous, and only other, assessment charged to policyholders came after the hurricane seasons of 2004 and 2005. 

What Florida policyholders can do

No one has more at stake here than Citizens policyholders. To hedge against a possible assessment, Nyce suggests looking for coverage in the private market

Citizens is required to try to find private coverage for its policyholders. But the private insurance market in Florida is in the midst of an affordability and availability crisis, with premiums rising faster than in any other state according to the Policygenius Home Insurance Pricing Report, and many insurers becoming insolvent or pulling out of the state. If finding private coverage isn’t an option, Nyce says, start saving money for an assessment, which will likely come over the next year.

“It is likely to be less than 15% of your premium, unless it is a big storm,” he says. “A large storm could trigger a full 15% assessment.”

Nyce expects recent legislation to address fraud in the property insurance market to stabilize the private market, but it will likely take time. 

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