Citizens Actuarial and Underwriting Committee Meeting Report: March 2011

 

The Citizens Property Insurance Corporation (“Citizens”) Actuarial and Underwriting Committee (“Committee”) met on March 4, 2011 via teleconference, during which updates on personal and commercial lines issues were given.  To access the meeting materials, click here.

Citizens’ Chief Insurance Officer Yong Gilroy opened the meeting, noting that the number of total policies in force has grown substantially in the past year, up from 1 million in January 2010 to 1.3 million in January 2011.

Mr. Gilroy then introduced Stephen Mostella, Citizens’ new director of commercial lines, who reported that inspection reports will be available on the 10th of every month. 

Mr. Mostella spoke at length about appraisal-related issues, explaining that Citizens is moving toward only accepting appraisals from licensed appraisers, a subject that drew criticism from several in attendance at the meeting.

“The licensed appraisers are the ones who are creating the problem.  Many of the appraisers are like hired guns.  You can go out anywhere in Palm Beach or Broward and you can get the numbers to come in anywhere you want,” said one meeting participant, who added that unlicensed appraisers are often “insurance people” who understand what it takes to be insured and, as a result, do a better job.  Licensed appraisers are trained to determine resale or market value, not the cost of insuring a property, she said.

“I am very much against just limiting it to licensed appraisers.  I want to be able to continue using appraisers who we have used before who are reliable,” another meeting participant said.  Because discussion became so heated, Mr. Mostella said the issue will be discussed further at a future meeting.

 

PLA Update

Citizens Director of Agent Services Joe Bouthillier said that 421,000 Personal Lines Account (“PLA”) applications and 439,000 endorsement requests were received from January 2010 to January 2011.   New applications for Multi-Peril coverage totaled 373,000 for the same period, while Wind-Only coverage applications totaled 48,000.

Mr. Bouthillier noted that, under a change to Citizens’ Personal Residential Multi-Peril roof policy, 10,000 policies a month will not be renewed, unless a policyholder can provide an update on the condition of the applicable roof.

 

CLA Update

Mr. Mostella reported that, from January 2010 to January 2011, Commercial Lines Account (“CLA”) applications totaled 12,625, with 38,505 endorsement requests received for the same period.  The workload is being handled by 39 commercial lines employees in Tampa and Jacksonville.  During the same time period, Commercial Multi-Peril application requests totaled 3,046, and Commercial Wind-Only application requests totaled 9,579, he said.

A search is being conducted to hire an underwriting manager in Jacksonville to assist with the growing workload, he added.

 

Product Development Update

Kim Chaney, Citizens’ Director of Product Development, discussed several submitted and upcoming form filings, explaining that some minor amendments to the forms have been required to provide greater clarity.

For forms filed on February 11, 2011 to be effective May 15, 2011:

• The definition of “single building” has been updated for commercial residential and non-residential wind policies to mirror the definition found in commercial residential and non-residential multi-peril policies.
• Alternative documentation will be allowed in order to avoid application of the Sprinkler Leakage Exclusions

For form filings scheduled to be submitted on March 15, 2011 to be effective August 1, 2011:

Personal Residential Only

• Water seepage exclusion:  Reference to a definitive number of days (“14 days or more”) to manifestation of conditions will be changed to clarify the intent of the exclusion.
• Flooring limits:  Coverage will be broadened to allow for cosmetic and aesthetic damage to floors, subject to a special limit
• Inspection and Surveys:   Language will be added stating that Citizens has the right to inspect a policyholder’s property.

Commercial Only

• Adjustment to Property Limits:  Language will be added to express that property limits may be adjusted at renewal.
• Commercial non-residential wind deductibles will apply separately to building and contents with a $1,000 minimum deductible.

All Lines

• The intent of the word “neglect” will be clarified by amending “the insured” to “any insured.”
• The protection of property requirement in regard to “duties after loss” will be clarified by changing “must make repairs” to “must make temporary repairs.”
• A new clause will be added to the term “salvage.”
• Language relating to “return premium” will be amended to clarify “15 days” to “15 working days,” which mirrors requirements found in the Florida Administrative Code.
• Forms are being amended to reflect SB 1196, which relates to condominium law.

Also effective October 1, 2011 as a condition of rates approved earlier this year by the Florida Office of Insurance Regulation (“OIR”), Citizens will require a sinkhole inspection prior to binding sinkhole coverage.  However, it was suggested that this be amended to provide that Citizens share the cost of the inspection fee.  Further, it was agreed that there should be a requirement for a mandatory sinkhole inspection in ZIP codes that have experienced 10 or more claims.  The Committee approved this amendment for consideration by Citizens Board of Governors (“Board”) on its March 30 consent agenda. 

Ms. Chaney indicated that work has started on a filing for rate changes to PLA and CLA accounts to be effective in January and February 2012, respectively.   This work has included an evaluation of PLA base rates, specifically in regard to opening protection, Class C and glazed openings.

For Commercial rates, Citizens is considering the merits of splitting the Commercial Residential Wind rating table into condo and non-condo tables, as well as evaluating wind rates for consistency between the Commercial Residential Wind and Multi-Peril rates.

Sinkhole rates in Commercial Residential Multi-Peril Group II will be examined, as will the consistency in coinsurance and coverage limits

 

Actuarial Update

Citizens Chief Actuary Brian Donovan reported that the year-end reserve analysis has been completed for each Citizens account.  An actuarial opinion has been signed and loss reserves have been certified.  Of note, sinkhole reserves were evaluated separately for the first time. 

According to Mr. Donovan, there has been about $19 million worth of “unfavorable development” relating to Hurricane Wilma in Citizens’ PLA and High-Risk Accounts, but it has been largely offset by comparable favorable Wilma-related activity in the CLA.  He added that Citizens will be evaluating the potential of pricing sinkhole coverage separately for Commercial Residential Multi-Peril accounts.

Once Citizens reinsurance decisions are finalized, rate indications will be completed, Mr. Donovan said.

He finished his report by relating that his department has started preparing premium data for the PLA.  Data on losses will not be available until mid-April, however.

 

Quality Assurance and Training Update

Citizens Director of Operations Angie Quinn reported that interviews are underway to fill the position of Citizens Quality Administrator.  Another position, underwriting training manager, has already been filled by Michele Ortiz, she said.  A key focus now is training Citizens’ underwriting staff.

 

Vendor Management Update 

Citizens Director of Vendor Relations Eric Ordway presented two items requiring Committee action:

• The first item involved sinkhole geotechnical engineering services and the award of contracts for underwriting sinkhole inspections.  Mr.  Ordway explained that the purpose of the solicitation was to identify engineering firms to provide geotechnical evaluations and grout monitoring services for sinkhole claims activity and underwriting sinkhole inspection.  Citizens’ Claims Department currently spends more than $17 million annually on engineering services for these services, a number expected to jump to $20 million with the recent increase in sinkhole claims.  Mr. Ordway said 28 companies responded to an invitation to bid.  Committee members unanimously voted to recommend that the Board award multiple firm contracts for sinkhole geotechnical engineering services, at a cost of $21 million, with $1 million earmarked for underwriting sinkhole inspections.  The contract term is three years, plus one two-year renewal, for a five-year total contract value of $105 million.
• The Committee also unanimously voted to recommend that the Board approve the ISO Master Agreement Participation fee, enabling Citizens to continue to use ISO-based forms, endorsements, classifications, rating rules and loss costs.

 

Inspection Program Update

As of January 31, 2011, Citizens has completed 13,009 residential inspections and 1,557 commercial inspections, it was reported. The average premium changes on completed inspections is down five percent from the December 2010 report, it was noted. 

Citizens Underwriting Department is currently processing about 13,000 open assignments, with a completion date scheduled for March 2011.   An estimated 6,000 remaining open inspections should be received and processed through April 2011.  Citizens is postponing 6,073 PLA assignments due to the quality of policyholder contact information and to transition to the 2011 program, it was noted.

One Committee member voiced concern about fraud and the effect on premiums if an inspection has been done incorrectly.

“Do we have anything in writing that says we can’t adjust the premium until the area where there is a discrepancy has been addressed? We can’t go in and correct the premium when there are major mistakes in the inspection process?” the Committee member asked.  It was agreed that an inquiry about this will be made.

 

Open Issues

A status update was given on issues that have been previously been identified by the Committee for review:

• Citizens has completed an impact study of amending its Commercial Residential and Non-Residential Transient Occupancy Eligibility policy, but still must evaluate rate and exposure impacts.  Until this review is completed, Citizens will continue to enforce the “25 percent” Rule in Section VII of the CRW/CNRW underwriting manual.
• Citizens also has confirmed that buildings classified as timeshare accommodations are not covered by the Florida Hurricane Catastrophe Fund and, in addition, do not meet eligibility for CRW per the definition above.   Citizens will start the process of identifying these risks and working with agents to ensure these risks are written in the correct account.
• Any changes to the commercial residential coinsurance options or coverage limit requirements are considered to be changes in coverage and, as such, not subject to the rate cap.   An initial premium analysis was completed and, due to impact, the implementation of regulations that provide consistency in the Commercial Residential Coinsurance/Coverage Limits options will be included in Citizens’ 2012 rate filings.
• Citizens was recently advised that the Florida Office of Insurance Regulation (“OIR”) is working on creating a commercial mitigation form.   Meanwhile, Citizens will continue to use forms OIR-B1-1802 and MIT-BT II and III for new business and its reinspection program until a new form is available.
• Citizens has confirmed the cost of construction factors that are proprietary and, as such, cannot be distributed.
• Communication about Citizens Inspection Program Ombudsman was distributed to all agents on November 1, 2010 along with supporting tools and documents.
• Citizens has developed a system to prevent any potential misuse of Florida Market Assistance Program data by agents for the purpose of re-writing back to Citizens.
• Underwriting communications have been updated to include underwriter’s name.

 

With no further business before the Committee, the meeting was adjourned.

 

 

Should you have any questions or comments, please contact Colodny Fass.