Understanding Citizens Property Insurance Corporation
Citizens Property Insurance Corporation was created by the Florida Legislature to provide property insurance protection to people who are in good faith entitled to obtain coverage through the voluntary market but are unable to do so. As the state's insurer of last resort, Citizens plays a vital role in maintaining the stability of the Florida housing market by ensuring that every homeowner has access to essential property protection.
For candidates preparing for the complete FL 2-20 exam guide, understanding Citizens is critical. It is not a traditional private insurance company; rather, it is a government-created, not-for-profit entity. While it functions similarly to a private carrier in terms of claims handling and policy issuance, its eligibility rules, funding mechanisms, and coverage limitations are strictly regulated by Florida law.
The Three Accounts of Citizens
Eligibility and the 20% Rule
Citizens is legally prohibited from competing with the private insurance market. Therefore, an applicant is only eligible for a Citizens policy if they meet specific criteria. The most prominent of these is the 20% Eligibility Rule.
Under this rule, an applicant is ineligible for Citizens coverage if they receive an offer of coverage from a private, admitted insurer that is within 20% of the premium quoted by Citizens for comparable coverage. For renewals, if a private insurer offers a premium that is equal to or less than the Citizens renewal premium, the policyholder must move to the private market.
- Lack of Availability: If no private insurer is willing to write the risk, the applicant is eligible.
- Unaffordability: If private market quotes are more than 20% higher than the Citizens quote, the applicant may choose Citizens.
- Property Condition: Properties must be in good repair; however, Citizens often accepts risks that private carriers decline due to the age of the roof or older electrical systems.
Important Exam Note: Agent Appointments
To submit business to Citizens, an agent must be licensed and appointed by Citizens. Even if you hold a 2-20 General Lines license, you cannot bind coverage with Citizens until you have completed their specific appointment process and training modules. Be sure to review this requirement on our practice FL 2-20 questions.
Citizens vs. Voluntary Market Policies
| Feature | Private Insurance Market | Citizens Property Insurance |
|---|---|---|
| Coverage Scope | Broad, often includes many endorsements | More restrictive; limited endorsements |
| Replacement Cost | Standard for most HO-3 policies | Available, but subject to strict limits |
| Personal Liability | Limits often up to $500,000 or $1M | Typically capped at $100,000 |
| Assessments | Low risk of extra surcharges | High risk of assessments if a deficit occurs |
Funding and Assessments
Unlike private insurers that use surplus and reinsurance to pay claims, Citizens has a unique statutory mechanism to handle deficits following a major catastrophe. If Citizens exhausts its ability to pay claims, it can levy assessments on Florida policyholders.
The assessment process follows a specific hierarchy:
- Citizens Policyholder Surcharge: A direct surcharge on Citizens' own policyholders.
- Regular Assessment: An assessment levied on most other property and casualty insurance policyholders in Florida (excluding workers' compensation and medical malpractice).
- Emergency Assessment: A multi-year assessment that can be applied if the initial assessments are insufficient to cover the deficit.
This assessment power is why Citizens is often referred to as a "taxpayer-backed" entity, though the assessments fall on insurance policyholders rather than general taxpayers.
The Depopulation Program
The goal of the Florida Legislature is to reduce the number of policies in Citizens and move them back to the private market. This process is known as Depopulation or the "Take-out Program."
Private insurance companies, approved by the Office of Insurance Regulation (OIR), can submit "take-out" requests to assume Citizens policies. Policyholders are notified of these offers and, depending on the premium difference, may be required to accept the private market offer to remain eligible for coverage outside of Citizens.