Demotech Compares the Expenses of Citizens Property Insurance Corporation to Other Single State Property Insurers
January 10, 2012
Demotech, Inc. has completed an analysis of the relative historical expense levels reported by Citizens Property Insurance Corporation, 47 carriers dedicated to Florida’s property insurance marketplace as well as 77 private, single state insurers focused on the property insurance marketplace in states other than Florida. The results of this analysis, Comparative Expense Study of Citizens Property Insurance Corporation, are available at http://news.demotech.com/pc_research/citizens_expense_study_20120106/.
Demotech observed that the expense levels of Citizens compare favorably to other property writers focused in a single state due to its unique corporate structure, as approved by the Florida Financial Services Commission. This approved business plan is significantly different than the business plans available to private insurers with a similar business focus, whether within of Florida or other states. Based on a review and comparison of the expense and premium information for the period encompassing calendar years 2006 through 2010, Demotech concluded that Citizens’ expense ratio advantages, while favorable on an overall basis, are heavily influenced by factors that relate to the corporate structure bestowed by statute as opposed to competitive advantages associated with procedures and practices implemented within the organization.
The total expenses paid for Citizens averaged 24 percent of net premium written from 2006 through 2010. Over the identical period, the total expenses paid by private sector insurers competing for property insurance business in Florida averaged 56 percent of net premium written. In the other 49 states, expenses for insurers competing for property insurance business averaged 41 percent of net premium written.
If Citizens had paid total expenses at a similar rate and ceded premium at the same percentage as the private sector Florida insurers, it would have paid approximately $3.6 billion in total expenses instead of $2.7 billion. If Citizens had paid total expenses at a similar rate and ceded premium at the same percentage as the private sector insurers in states other than Florida, it would have paid over $3.9 billion in total expenses. In either scenario, the impact to underwriting income would have been significant.
In addition, if the private sector Florida insurers had paid expenses and ceded premium at similar rates as Citizens, they would have paid over $4.8 billion instead of over $6.3 billion in total expenses. The overall impact to underwriting income would have been highly significant.