Gov. Ron DeSantis is still trying to depopulate the state’s Citizens Property Insurance Corporation, which was created in 2002 to provide both windstorm and general property insurance to homeowners who can’t find insurance coverage in the private market.

Universal Property and Casualty, the largest private insurer in the state, stopped writing new business in several Florida counties in December 2021 due to the unstable market. In total, 13 home insurers in Florida stopped writing new business in 2021.

Homeowners, finding it difficult if not impossible to secure coverage in the shrinking private market, swelled the ranks of Citizens to more than a million people. According to S&P Global, by last June, Citizens grew more than 65%, making it one of the top 10 insurers in America. DeSantis would like to reduce Citizens’ ranks to 500,000 people.

In an attempt to wean homeowners from the state’s property insurer of last resort, Florida will now require thousands of part-time residents and owners of second homes in Southwest Florida to insure those properties through surplus line carriers.

There’s a catch, however. HB 1503, which became law July 1, requires the homeowner to purchase the surplus line carrier’s insurance, even if it costs 20% more than what Citizens charges for property insurance.

So, if Citizens charges you $3,000 a year and a surplus line insurance carrier offers you, the nonhomesteaded homeowner, a premium of $3,600 a year, you have to leave Citizens and pay the higher rate.

“The new law allows Citizens’ secondary home policies to be part of its depopulation program,” says Mark Friedlander, an analyst with the Insurance Information Institute. That means about 77,000 people, many of them snowbirds and owners of second homes, must pay the higher line insurance rate if those policies are within 20% of Citizens’ rate.

Tom Cooper, whose double-wide home in Indian Creek was heavily damaged during Hurricane Ian, is a candidate for surplus line insurance. Like others who owned homes in Indian Creek in Fort Myers, he suffered devastating damage to his home. He had trouble finding an insurer, so he contacted Citizens.

“The smaller insurance companies were going out of business due to the large volume of claims, which left Citizens as the only source of insurance,” Cooper says. “They gave me an estimate of $800 a year—but did not offer flood insurance.”

Citizens, knowing homeowners had few options for insurance, offered “skyrocketing premiums,” Cooper said.

Cooper’s home was damaged by wind and water, destroying his furniture, clothes and other interior items. When it came time to reinstate his insurance, he only wanted to insure the structure.

“They would not allow us to reduce the coverage limits,” Cooper says. “I’m not sure of the rationale, but they simply would not allow us to hold liability coverage alone. So, we canceled the insurance altogether in April.” He is still considering his next move.

There are other considerations when considering surplus line products, said Mark Boyle of Boyle, Leonard & Anderson, P.A., a firm that represents clients in insurance matters. He said policyholders could be disappointed when they make an insurance claim.

“Those consumers who get surplus line insurance will be very surprised when they start making claims because they have very poor policy coverage,” Boyle says. “Surplus line insurance policy forms are not required to be reviewed by the Department of Financial Services. Surplus line insurers, accordingly, offer very limited coverage, often for premiums at or near the standard market premium ratings.”

However, it’s not entirely the Wild West when it comes to the carriers, which are typically multinational or major national insurers who write specialized coverage, Friedlander said.

“They’re going to have to be at least A- rated by A.M. Best to participate in depopulation,” he says. The rating is based on the evaluation of an insurance company’s financial strength, operating performance and business profile, he said.

The Florida Surplus Line Services Office, or FSLSO, in Tallahassee is a quasi-governmental agency overseen by the Florida Department of Financial Services and the Office of Insurance Regulation. Its website describes who these carriers are, what they do and what property owners should know before seeking coverage from them. The oversight organization tells it like it is.

“Surplus Line Insurance carriers are not approved by any Florida regulatory agency,” says Kristen Gray, an agent and insurer services manager with FSLSO. “Since they are not approved by a Florida agency, it’s important you review those policy documents so you have the coverage for what you want covered. Make sure you know of any exclusions in their policies, because like other insurance carriers, you’re going to have exclusions, but make sure it does not exclude something important to you.”

By the way, Gray said property owners cannot buy surplus line insurance for their homesteaded properties simply because they’re looking for a less expensive policy.

“It’s a statutory requirement that your insurance agent must be unable to place your policy with an admitted insurance company before he can export it to a surplus line insurer,” she says. “Even if the admitted insurance company’s rates are higher, they have to pay that higher price if they are able to place it with an admitted price.”

The state doesn’t provide the homeowner with much muscle if the unregulated surplus line insurance company refuses to pay a claim.

“You could report that to the Department of Financial Services; there’s no oversight over forms and rates, but there’s still a little bit of oversight over the company,” Gray says. “They’ll look into it to see if they would be able to assist you in reaching out to the company.”

Meanwhile, surplus line insurance may not be the answer for high insurance rates. The FSLSO reported that the average cost per policy in 2023 was $10,407, which was 20% higher than in the fourth quarter of 2022.

According to Insurify, the news doesn’t get better. Property insurance rates will increase 6% in 2024 but could jump as much as 23% in states with severe weather.

The hits keep coming, especially for Fort Myers and other Lee County areas that are now ineligible for FEMA’s 25% flood insurance discount. FEMA blamed Lee County for unpermitted reconstruction work, lack of documentation and failure to monitor reconstruction projects in special flood hazard areas.

However, at the end of April, FEMA hinted that the discount could be reinstated.

“We are committed to helping communities take appropriate remediation actions to participate in the Community Rating System and remain in good standing with the National Flood Insurance Program,” FEMA spokesperson Lea Crager told Gulfshore Business. “Each of the five communities will have an additional 30 days to gather requested documentation to help retain their standing in the Community Rating System.”