Citizens Actuarial and Underwriting Committee Meeting Report: May 11

On Monday, May 11, 2009, Citizens Property Insurance Corporation (“Citizens”) Actuarial and Underwriting Committee (“Committee”) held a meeting to discuss proposed changes to disputed claims policy forms and commercial and personal residential multi-peril policies, as well as receive updates on Citizens’ 2010 rate filings and single personal lines projects.  To view the complete meeting agenda, click here.

 

Disputed Claims Policy Forms

Citizens’ property insurance policies provide that, in the event of a dispute related to the amount of a loss, either Citizens or the policyholder may demand an appraisal of the loss. 

Currently, Citizens uses insurance industry standard language regarding claims disputes in its policies; however, this language has been found inadequate by Citizens’ Auditor General because it provides virtually no rules for the dispute process.  It was reported that, as a result of the appraisal process, Citizens (and other insurers using this language) have been required to pay damages that may not be covered by the policy form, caused by a covered peril, or supported by substantial evidence.  As the language is written, insurers do not have recourse to meaningful judicial review.  As a result, some private market insurance companies have eliminated disputed claims appraisals from their policy forms.

Citizens’ Staff recommends eliminating the disputed claims appraisal provision from its property insurance policies for the following reasons:

• Citizens Staff has more confidence in the judicial system than the appraisal process because appraisers and umpires are essentially unregulated;
• Mediation, which is the Florida Legislature’s favored method of dispute resolution, will be the alternative method of choice through the elimination of appraisals;
• The basis of awards based on appraisals is outside the scrutiny of both policyholders and insurers; and
• Elimination of appraisals would meet fair treatment and disclosure objectives suggested by the Auditor General’s Office because the courts are focused on policyholder rights and all judicial decisions are fully disclosed.

Committee Chairman Earl Horton expressed concern that by eliminating appraisals, disputed claims would take longer to be resolved. 

Paul Palumbo, Citizens’ Senior Vice President of Underwriting, replied that the majority of disputed property claims are already handled through mediation, which is the most efficient method of dealing with disputed claims. 

Yong Gilroy, Citizens’ Senior Vice President of Claims, indicated that the majority of claims anticipated to be litigated are commercial residential claims.  He stated that, although the number of claims rose during the first quarter of 2009, the number of commercial residential claims remained low.  In January 2009, 24 out of a total of 819 claims were commercial residential claims.  In February 2009, 37 out of 851 claims filed were commercial residential.  Of the 885 claims filed in March 2009, 20 were commercial residential. 

Citizens’ Staff recommends the following additional changes to its property insurance policy forms:

• Allow Citizens to require examinations under oath and recorded statements for all property claims;
• Conform the “duties after a loss” provisions contained in multi-peril policies to those in wind-only policies; and
• Modify the “duties after a loss” provisions of all polices to improve the claims adjusting process.

Committee members requested that a study be completed detailing statistics on Citizens’ disputed claims by line and type, as well as by industry-wide participation in the appraisal process.  Mr. Palumbo said the requested information will be submitted for discussion during the June 2 Committee meeting.  It was determined by the Committee that any changes to the disputed claims policy forms would be deferred until the statistics are reviewed.  To view a summary of proposed policy form changes, click here.

 

Commercial Line Policy Changes

Citizens’ Staff recommends implementation of a 30-day waiting period for coverage on all commercial risks and revision of current appraisal requirements for commercial wind and commercial residential multi-peril risks.  To view a summary of recommended commercial line policy changes, click here.

The 30-day waiting period would be imposed for all commercial residential and nonresidential multi-peril and wind policy applicants who have not had insurance coverage for 45 days prior to application.  This waiting period is intended to deter applicants with no prior insurance from obtaining coverage in anticipation of a specified wind event.  Applicants seeking coverage for a new purchase, applicants who have recently been non-renewed by another carrier and any other applicant who has maintained coverage immediately prior to seeking it from Citizens would not be affected.

Currently, property appraisals dated within 18 months of the application are required to be submitted for commercial wind and commercial residential multi-peril risks for each separately-scheduled building to be insured as new business, or any endorsement request to add a new building to an existing policy.  Citizens’ Staff recommends revising the appraisal requirement from 18 months to 12 months, in order to allow Citizens’ automatic increase in coverage limits to be applied consistently to all risks upon renewal. 

The Committee approved implementation of the 30-day waiting period and revision to the appraisal requirement. 

 

Personal Residential Multi-Peril Policy Changes

Citizens’ Staff recommends new plumbing, electrical, and roof age eligibility requirements for personal lines residential multi-peril policies.  To view a summary of Staff recommendations, click here.

Since water damage is a major source of Citizens’ non-catastrophe losses, Citizens’ Staff recommends revising the list of ineligible risks to include properties with plumbing that is in poor condition, has visible leaks, or has interior supply lines that are not made from copper or PVC pipe.  For properties over 50 years old, documentation noting that the plumbing is in good condition and has been updated in the last 35 years also would be required. 

Chairman Horton inquired how plumbing condition would be validated.  Mr. Palumbo stated that if the new plumbing requirement is approved, that information would be added to a home’s four-point inspection.  That inspection would include the condition of plumbing supply lines and fixtures, would be conducted by a licensed inspector and be consistent with existing roof, electrical and heating/cooling system requirements.

The Committee approved the recommended plumbing requirement changes.

Citizens’ Staff proposes to expand its ineligible property category from only those homes with knob and tube wiring to include those with aluminum wiring because aluminum wiring has been found to present a significant fire risk.  As detailed in a report issued by the Consumer Products Safety Commission, “the likelihood of having an electrical related fire is 55 times higher with a house wired with aluminum wiring than one wired with copper wire.”

Chairman Horton inquired about the number of current Citizens policyholders who would be affected if aluminum wiring is added to the ineligible property list and expressed concern that requiring policyholders to re-wire their homes would be expensive.  Mr. Palumbo indicated that wiring type is not information currently collected by Citizens, but that the exclusion of aluminum wiring is an industry-wide underwriting practice. 

After discussion, it was determined that the Committee would recommend exclusion of aluminum wiring for all new policies and that a full policy term would be given to existing policyholders to comply with the new rule.

As previously approved by the Committee and Citizens’ Board of Governors (“Board”), Citizens recently introduced age-of-roof rules in personal lines residential wind-only policies.  The rules specify that, in order to be eligible for a wind-only policy, roofs must not be damaged or have visible signs of leaks and must have at least three years of remaining useful life.  Roofing material must also be replaced every 25 years (if shingle) or 50 years (if tile, slate, clay, concrete or metal). 

The Committee approved introducing the age-of-roof rules for multi-peril policies.  If approved by the Board, this change will be implemented in October 2009.

 

2010 Rate Filings

Brian Donovan, Citizens’ Director of Actuarial Services, gave an update on the 2010 rate filings required to be submitted to the Florida Office of Insurance Regulation on July 15, 2009.  To view a summary update of Citizens’ 2010 rate filings, click here.

Citizens’ Staff is in the process of completing the 2010 rate filings for all lines of business.  The following elements are being incorporated into the rate indications:

• A 10 percent cap on premium increases per policyholder;
• Pass-through options for Florida Hurricane Catastrophe Fund (“FHCF”) rapid cash buildup; and
• The purchase of Temporary Increase in Coverage Limit layer reinsurance from the FHCF and no purchase of private reinsurance for the 2009 hurricane season.

Statewide rate level indications for each product line will be presented to the Committee for approval during its June 2 meeting. 

 

Single Personal Lines (“SPL”) Project

Citizens’ Staff is working to limit the burden associated with rewriting all personal residential wind-only policies that are expiring due to implementation of the SPL project.  To view a summary update of the SPL project, click here.

Shortly after implementation of the SPL project, Citizens’ agents expressed concern about the limited time provided to obtain the information and documentation from policyholders needed to rewrite policies.  Citizens announced that agents and policyholders now will be given a full policy term to provide the required documentation, as long as the submission includes the minimum information and adequate premium to issue a policy.  To view the March 13 e-mail to agents, click here.

The additional work resulting from the SPL project has created a backlog within Citizens’ Personal Lines Underwriting Department, which has caused delays in confirming policyholder coverage and agent commissions.  In an effort to reduce the backlog, Citizens has announced that rewritten SPL applications would be issued prior to underwriting.  Citizens’ underwriters will continue to fully review all SPL policies after issuance to verify coverage amounts, rating information and eligibility.  To view the April 28 agent e-mail, click here.

Citzens’ Staff also has found that a number of customers whose wind-only policies have expired due to implementation of the SPL project have not re-applied for coverage.  Citizens’ Staff is considering sending a post-expiration notice advising customers that their coverage with Citizens has expired and urging them to seek assistance from their agent in addition to the three notices sent prior to policy expiration.

The meeting was then adjourned.

 

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

 

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