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CNN
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The exodus of state insurance companies from Florida and the cancellation of plans by local private insurers have left many homeowners there with only one option: Citizens Property Insurance Corp.

The government-sponsored nonprofit home insurance company was founded as an emergency insurer for those unable to find coverage on the private market. With 1.3 million policies in force last month, three times more than five years ago, Citizens is by far the largest provider in the state.

But now, with Hurricane Helene and Hurricane Milton hitting within days of each other and devastating Florida homes, the insurer will almost certainly have to pay out billions of dollars in claims.

Can citizens stay afloat?

The answer lies in the insurer’s structure – which can be reassuring for policyholders, even if it ultimately leads to higher premiums.

Florida Gov. Ron DeSantis warned earlier this year that Citizens was “unsolvent” and that it couldn’t function when “millions of people depend on it, because if a storm hits, it’s going to cause problems for the state.”

“Fortunately, Florida avoided the worst-case scenario predicted with Milton, but that does not change the fact that Citizens may be just one catastrophic storm or storm season away from bankruptcy,” said Sen. Sheldon Whitehouse, a Democrat Rhode Island, told CNN in an emailed statement.

“Should claims exceed the insurer’s ability to pay, Citizens has a mechanism to pass on losses to Florida families who are already paying exorbitant premiums,” said Whitehouse, chairman of the Senate Budget Committee and head of an investigation into Citizens’ claims. Viability. “It is unlikely that it is economically or politically feasible to recoup billions of dollars in losses from Floridians, let alone in time to pay massive claims – which is why the Budget Committee fears possible requests for a federal bailout.”

The only way to qualify for Citizens insurance is if the lowest quote received from a private insurer is more than 20% higher than Citizens’ quote. Your property must also be worth $700,000 or less, unless it is in Miami-Dade or Monroe counties, where the cap is $1 million.

But while Milton and Helene will undoubtedly put pressure on Floridians and the state-backed home insurance provider, the storms won’t spell doom.

“Citizens cannot default like a private insurer,” Mark Friedlander, spokesman for the Insurance Information Institute, an industry group, told CNN in a statement. Because of its structure, “in a worst-case scenario where its reserves would be depleted due to a large volume of storm damage, Citizens is authorized by state regulations to impose a premium surcharge on its policyholders and other consumers in Florida to ensure all claims are paid,” said he.

These “other” customers include people with other types of policies—including auto, boat, pet, and rental—who live in Florida and whose premiums could increase to cover Citizens claims, even if they do not have Citizens. Have a policy.

Representatives for DeSantis did not respond to CNN’s request for comment. The Republican governor said in a CNBC interview Thursday that “more and more private home insurance companies are coming to Florida” since Hurricane Ian two years ago. The state has tried to shift some of the citizens’ policies onto them. And at the end of last year, it was able to transfer 300,000 policies to private insurers.

Michael Peltier, a spokesman for Citizens, said the insurer expects the number of its policies to decline even further by year’s end as more private companies take on Citizens’ policies.

As for any claims against Milton, Citizens has about $15 billion available, according to financial filings. For that reason, and because of the insurance the company carries on the policies for which it is responsible (called reinsurance), it is unlikely that it will need to immediately make any serious changes to pay Floridians’ claims, he said Denise Rappmund, senior analyst at Moody’s Ratings.

Peltier also told CNN that Citizens “has the financial resources to address claims from Hurricanes Milton and Helene without the need for surcharges or tax assessments.”

But it’s possible that more private insurers in Florida, which must adhere to state guidelines on the size of their premium increases, will cancel their policies after this year’s hurricanes, which will lead to more people turning to Citizens, Rappmund said. “If you don’t allow the price to match the risk, the private companies can’t do business there and they pull out.”

But if fewer private insurers want to do business in Florida, Citizens would likely have to push harder for higher rates for its customers and perhaps even revise its policies’ coverage, Rappmund told CNN.

Bobby Atwood, a 29-year-old product manager who recently moved to Orlando but rents out his home in the Tampa Bay area, was excluded from private home insurance three years ago because the value of his property skyrocketed due to the influx of real estate shot New residents are moving there. Like many other Floridians, he was forced to turn to Citizens for insurance coverage.

Although he knew his insurance costs would likely increase, Atwood said he found it “reassuring” to know his policy would not be canceled.

“It’s nice to know that Citizens isn’t just going to file for bankruptcy,” he said.