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During the last 40 years, state-run property insurers have enjoyed
growth in number of policies they’ve issued and the exposure value
covered. But signs indicate that growth is flattening a bit across the
country.
According to “Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice,” a white paper from the Insurance Information Institute (I.I.I.), total exposure to loss in the plans ballooned from $54.7 billion in 1990 to $656.7 billion in 2006. However, the relatively calm hurricane seasons of 2006 and 2007, along with state legislative efforts to reduce the exposure of their state-run property insurers, contributed to either a flattening or a slight decrease in the number of homeowners and businesses purchasing property insurance policies through a state-run insurer since January 2007. For example, so far in 2008, the Florida Office of Insurance Regulation has approved plans to remove half a million policies from Florida’s state-run plan.
These state-run property insurers are housed in Fair Access to Insurance Requirements (FAIR) programs, as well as beach and windstorm plans. Thirty-two states have FAIR plans, along with the District of Columbia, while Texas, Mississippi, and South Carolina have sizable beach and windstorm plans. FAIR, beach, and windstorm plans are run by state insurance regulators in conjunction with private insurers and combine public and private resources to finance economic recovery from accidental losses.
“In contrast to the private market, state-run insurers concentrate risks on the state itself—its property owners, business owners, even its drivers, and, in some cases, the state’s taxpayers,” wrote the co-authors of the white paper, I.I.I. President Robert Hartwig and I.I.I. Vice President Claire Wilkinson. “While private insurance transfers and spreads risk, ensuring that sufficient funds will be available in the event of a loss, state-run plans act as a conduit to pass along their cost to other insurance buyers, even those who have never filed a claim, live nowhere near the coast, and in some cases have no property exposure at all.”
Between 1997 and 2006, the number of residential FAIR plan policies nationwide grew from 1 million to 2.4 million, and FAIR commercial policies expanded from almost 58,000 to slightly more than 172,000. As of 2006, Florida and Massachusetts were the states with the most FAIR plan policyholders, according to the Property Insurance Plans Service Office (PIPSO).
“Today, many residual property market plans have shifted away from their original mission as insurers of urban properties into major providers of insurance in high-risk coastal areas,” Hartwig and Wilkinson wrote. “It is important to recognize that many operate at deficits, or from slim positions of surplus, even in years with little or no catastrophe losses.”
Despite a recent downturn nationwide, Florida’s state-run Citizens Property Insurance Corporation has become the largest homeowners insurer in that state. In fact, Florida Citizens accounts for 68 percent of the total FAIR plans’ exposure to loss, and 60 percent of the total policy count nationwide.
Of the 2.6 million total policies insured by U.S. FAIR plans in 2006, more than 1.5 million were in Florida Citizens. Massachusetts had the next largest number of policies, with 217,056, or 8.5 percent of total policies, according to the I.I.I.
The Texas FAIR plan, which insures residential properties but not commercial ones, had 109,461 policyholders as of 2006, while the Texas Windstorm Insurance Association—its beach and windstorm plan—had 158,233 policies in-force across 14 coastal counties and parts of Harris County two years ago, making it one of the largest beach and windstorm plans in the country.
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