Citizens Actuarial and Underwriting Committee Meeting Report: October 9

Citizens Property Insurance Corporation’s (“Citizens”) Actuarial and Underwriting Committee (“Committee”) met on October 9, 2009, during which Citizens 2010 rate filings and a report on non-catastrophe water losses were reviewed, among other agenda items.  To view the complete meeting agenda, click here.

 

Single Personal Lines Project

It is anticipated that personal lines underwriting will continue to be backlogged through January 2010 as a result of Citizens’ wind-only personal residential policies being re-written for the Single Personal Lines (“SPL”) project.  This backlog is expected to decline significantly by the end of 2009, since 75 percent of the policies related to the re-underwriting effort have expired.  To view a summary update on the SPL project, click here.

 

Inspection Outreach Program

Citizens is in the process of implementing the Inspection Outreach Program, a pilot program designed to verify the accuracy of windstorm mitigation credits through firsthand property inspection.  The inspection of a cross-section of 500 in-force commercial and personal residential policies will be undertaken.  Results will be analyzed and used to determine future phases of the program and workflows to be used for the inspection of new business and renewal policies.  It is anticipated that a third-party inspection management firm will oversee the inspection process on Citizens’ behalf.  To view a summary update of the Inspection Outreach Program, click here.

 

Non-Catastrophe Losses

The Non-Catastrophe Loss Working Group (“Working Group”) reported on updated water loss analysis statistics and related recommendations.  Initial findings on non-catastrophe fire losses also were provided. 

Water Losses

Water losses continue to account for the highest loss cost per policy, as well as for the largest increase in claims.

The Working Group’s preliminary water loss analysis identified plumbing leaks or breaks as the leading cause of loss costs over the past three years.  Additional analysis was conducted to determine if a home’s year of construction contributes to the frequency or severity of plumbing-related losses.  A slightly increased frequency was detected for homes built between 1930 and 1964. 

Because the frequency differences are small among homes built during this time period, the Working Group did not recommend addressing water loss issues through any form or underwriting changes based solely on the year of a home’s construction.

An analysis of 1,579 water claims was conducted to determine the number of claims with payments for damage due to contiguous flooring and/or “trenching,” and, if necessary, to re-categorize the specific correlative cause of loss previously identified in the claim file. 

The following causes of water loss were identified from among Citizens’ related claims:

• A supply line above a property’s concrete slab-(39 percent)
• Water entry through a property’s roof or walls-(25 percent)
• Appliance leak-(13 percent)
• Sewer or drain backup-(12 percent)
• A pipe under the slab-This type of claim accounted for eight percent of claims, but had the highest average and median total paid damage. It was reported that a possible cause of this high cost is that many of these claims involved losses paid for contiguous flooring and trenching.

Fire

The Working Group also conducted a preliminary analysis of fire-related non-catastrophe losses.  Two primary loss cost characteristics were identified: 

• the county in which the risk is located; and
• whether the fire was cooking-related or fell under the “other” category.

Miami-Dade County has the largest percentage of fire-related claims (42 percent).  The largest fire-related statewide loss cost per policy occurred in the “other” category, as opposed to the “cooking,” “electrical,” “lightning” or “smoke” categories.  Cooking-related fire was the second leading statewide fire-related loss cause.   The average incurred cost for fire claims in 2008 was $56,468, an amount that is second only to sinkholes in severity.

Recommended Plan of Action

The Working Group has identified the following actions:

• Developing best practices for evaluating Citizens’ staff and independent adjuster performance;
• Implementing an “early response” program for water claims;
• Using outside claims verification sources such as ChoicePoint® C.L.U.E.® reports for underwriting;
• Introducing a flooring sub-limit and researching the feasibility of applying the sub-limit for certain water loss causes;
• Developing educational tools for consumers with information on easy and inexpensive maintenance and loss control activities; and
• Continuing to monitor loss trends on a quarterly basis.

To view an update on non-catastrophe losses, click here.

 

Revised Commercial Quoting and Agent of Record Procedures

Citizens’ procedure for quoting rates on new and renewal policies for commercial residential buildings that have a replacement cost in excess of $10 million is being amended, with the goal of enhancing consumer understanding that Citizens’ underwriting practices are uniformly applied by all agents.  Citizens also would like to ensure that its staff is not spending unnecessary time and resources in the related administrative process.

Under the new procedure, applicants for new coverage can designate up to three agents to request quotes from Citizens on their behalf.  Citizens will provide a quote based upon information submitted by the first agent.  The second and third agents then may use that quote, or submit a separate request.

For renewal business, Citizens currently sends a renewal offer to both the policyholder and agent of record approximately 60 days prior to policy expiration.  Under the new procedure, policyholders may designate two additional agents to receive a copy of the renewal offer by completing a Renewal Offer Release Form (a copy of which may be viewed by clicking here).  If the policyholder chooses to change agents, the policy must be re-written by the new agent.

Any agent wishing to re-write an existing commercial policy must provide a signed Agent of Record Letter prior to, or along with the new application and accompanying documents.  Upon receipt, Citizens will notify the current agent of record that the policyholder has chosen to be re-written by a new agent.  The current agent then has 10 days to obtain a Rescission Letter from the policyholder. 

To view a summary update of the revised procedures, click here.

 

2010 Rate Filings

Citizens’ 2010 rate filings have been submitted to the Florida Office of Insurance Regulation.  A public rate hearing on Citizens’ commercial residential rates is scheduled for October 20, 2009 and another for wind-only rates is set for November 10, 2009.

Rating factors under consideration by Citizens for future filings include:

• A review of all lines of business to determine whether the territories need to be smaller;
• Whether property and general inspection fees for all lines of business may be shared with agents and policyholders;
• Screened-in porch coverage exclusions for personal lines policies;
• Limiting or excluding water coverage for some personal lines properties;
• Refinement of the commercial lines rating structure;
• Whether windstorm mitigation credits can be offered for commercial non-residential buildings;
• Making sinkhole coverage optional for commercial residential multi-peril policies; and
• Refining the rating structure and construction type analyses.

The meeting was then adjourned.

 

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

 

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