Insurance Information Institute Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice

Florida's Citizens Property Insurance Corp., the largest property insurer of last resort in the U.S., provides insurance to residential and commercial property owners unable to purchase coverage in the standard market. Yet Florida Citizens saw the number of its total policies in force drop to 1.2 million at year-end 2009, down 14 percent from 1.4 million at year-end 2008. Meanwhile, Louisiana Citizens Property Insurance Corp., the fourth largest state-run property insurer of last resort in the U.S. in terms of total policies in force behind Texas and Massachusetts, has seen an even more dramatic reduction in its total policy count. Louisiana Citizens had about 165,000 policies in force in June 2008, a figure that dropped to 127,000 policies as of June 2010, a reduction of around 40 percent.

"However, this year's report by the Insurance Information Institute, like the reports of the last two years, records the ongoing growth in the exposure base of the residual market property insurers along with the still-precarious financial condition of some plans. This growth comes despite a collapse in the housing sector that has brought development in many catastrophe-prone areas to a near standstill," write the report's co-authors, Dr. Robert Hartwig, president of the I.I.I. and an economist, and Claire Wilkinson, vice president of Global Issues at the I.I.I.

The I.I.I. estimates that, even as the number of policyholders in Florida, Louisiana and the 32 other Fair Access to Insurance Requirements (FAIR) Plans for which data are available dropped to 2.47 million from 2.62 million between 2008 and 2009, their cumulative exposure to loss grew to $614.9 billion in 2009 from $612.7 billion in 2008. The nation's FAIR plans account for by far the majority of policies and exposure in the U.S. overall residual property market. But when the FAIR Plan exposures are added to those incurred by Beach and Windstorm Plans, such as those in place in states such as Alabama and Mississippi, the U.S. residual market exposure to loss grows to $703 billion (2009) from $696 billion, according to the Property Insurance Plans Service Office (PIPSO).