Case Law Update: Citizens Rate Cap Structure Reinforced by OIR Order

Citizens Rate Increase Framework Established

In a significant regulatory development, the Florida Office of Insurance Regulation (OIR) issued a comprehensive Final Order in Case No. 299638-22 establishing the rate structure for Citizens Property Insurance Corporation. This order implemented the legislative changes from the 2021 session that modified Citizens' annual rate increase limitations, creating a structured approach to premium adjustments over a five-year period.

Legislative Background and Statutory Authority

The Florida Legislature amended paragraph (n) of subsection 627.351(6), Florida Statutes, during the 2021 legislative session to increase the single policy annual rate increase cap from 10% to 15% over a five-year period. This change was designed to provide Citizens with greater flexibility to achieve actuarially sound rates while protecting policyholders from sudden, dramatic premium increases.

Citizens' Statutory Purpose

The order reaffirms that Citizens was created by statute with the public purpose to ensure the existence of an orderly market for property insurance for Floridians and Florida businesses. This foundational principle guides all rate-setting decisions and regulatory oversight.

Rate Setting Requirements Under Florida Law

The OIR order clarifies that Citizens' rates must meet several specific statutory requirements:

Actuarial Soundness Mandate

Under section 627.351(6)(n), Citizens' rates must be actuarially sound and subject to the requirements of section 627.062, except as otherwise provided. This ensures that rates reflect the actual risk and expected losses associated with providing coverage.

Annual Filing Requirements

The order establishes that Citizens must file its recommended rates with the OIR at least annually. The OIR has 45 days to consider the board's recommendations and issue a final order establishing the rates. Importantly, Citizens cannot pursue administrative challenge or judicial review of the OIR's final order, giving the regulator significant authority over rate determinations.

Structured Rate Increase Schedule

The most significant aspect of the order is the establishment of a five-year rate increase schedule that provides predictability for both Citizens and policyholders:

• 2022: Maximum 11% annual increase
• 2023: Maximum 12% annual increase
• 2024: Maximum 13% annual increase
• 2025: Maximum 14% annual increase
• 2026 and subsequent years: Maximum 15% annual increase

Important Limitations and Exceptions

The rate caps apply to individual policies and exclude:

• Coverage changes
• Surcharges
• Sinkhole coverage (which has separate rate treatment)
• Cash buildup factor effects pursuant to section 215.555(5)(b)

Hurricane Modeling Requirements

The order addresses the use of hurricane loss-projection models in rate setting. Once the public hurricane loss-projection model under section 627.06281 has been validated by the Florida Commission on Hurricane Loss Projection Methodology, it must be considered when establishing the windstorm portion of Citizens' rates.

Citizens may use the public model results in combination with private models, but the order specifically states that this provision "does not require or allow the corporation to adopt rates lower than the rates otherwise required or allowed."

Premium Tax Collection

The order confirms that Citizens must impose and collect an amount equal to the premium tax provided for in section 624.509 to augment the corporation's financial resources. This additional collection helps strengthen Citizens' financial position beyond basic premium collection.

Impact on Public Adjusters and Claims Professionals

This regulatory framework has several important implications for public adjusters and claims professionals working with Citizens policyholders:

Predictable Premium Increases

The structured rate increase schedule provides predictability for policyholders planning their insurance budgets. Public adjusters should be aware that clients may face annual premium increases up to the statutory caps, which could influence coverage decisions and policy retention.

Rate Adequacy Considerations

The emphasis on actuarially sound rates suggests that Citizens is moving toward more risk-based pricing. This could affect claims handling approaches and settlement patterns as Citizens seeks to maintain financial stability.

Regulatory Oversight Limitations

The prohibition on Citizens challenging OIR rate orders means that approved rates have final regulatory approval. This provides certainty in the rate structure but limits Citizens' recourse if it disagrees with regulatory decisions.

Practical Considerations for Policyholders

Understanding this rate structure is crucial for advising policyholders:

Long-term Cost Planning

Policyholders should anticipate potential annual increases up to the statutory caps when budgeting for property insurance. The graduated increase structure provides some predictability but still represents significant cumulative cost growth over time.

Coverage Decisions

As rates increase, policyholders may need to evaluate their coverage levels, deductibles, and risk management strategies. Public adjusters should be prepared to help clients understand how coverage changes might affect their premium costs.

Market Alternative Analysis

With Citizens' rates designed to be non-competitive with the voluntary market, policyholders should regularly evaluate whether private market coverage has become available and potentially more attractive.

Regulatory Compliance and Documentation

The order establishes clear documentation requirements for Citizens' rate filings. Citizens must provide any additional information the OIR requires regarding rates, ensuring comprehensive regulatory review of proposed changes.

Long-term Market Implications

This structured approach to Citizens rate increases reflects broader policy goals:

• Encouraging private market participation through non-competitive Citizens rates
• Ensuring Citizens' financial stability through adequate rate levels
• Protecting consumers from sudden, dramatic premium increases
• Providing regulatory certainty for market participants

How Louis Law Group Can Help

As Citizens implements these rate structures and adjusts its operations accordingly, policyholders may face new challenges in claims handling and coverage disputes. Understanding the regulatory framework governing Citizens is essential for effective representation in property damage claims.

Louis Law Group's attorneys have extensive experience with Citizens Property Insurance matters and can help policyholders navigate the complexities of dealing with the state-backed insurer. Whether addressing coverage disputes, claim denials, or rate-related issues, our team provides knowledgeable advocacy for Florida property owners.

If you're facing challenges with a Citizens property insurance claim or need guidance on coverage issues, contact Louis Law Group at (833) 657-4812 for experienced legal representation.

Source: Florida OIR - Citizens Property Insurance Corporation Residential Property and Commercial Property Rate Filings (9-2-2022)