Citizens Actuarial and Underwriting Committee Reviews Options for New Business Rate Increases

 

In response to unfavorable media reports highlighting significant rate increases for some Florida counties under a proposal that would uncap rates for new policies, Citizens Property Insurance Corporation (“Citizens”) Actuarial and Underwriting Committee (“Committee”) agreed during its meeting today, May 17, 2012, that the controversial issue needs further study and input from state legislators.

Perturbed by the negative media coverage, Committee members vilified the media, calling recent stories on the rate hike proposals “very much out of context,”  “simply inaccurate” and “hyperventilation.”  Committee members indicated that the media mischaracterized the extent of the reported rate hikes.

“I won’t support anyone’s rate increasing by some of these percentages I have seen in the media,” said Committee member John Rollins.  “To be clear, I am not going to support a 60 and 90 percent rate increase in a single year on a single policy.  It’s simply not going to happen.  I think we are in a data view process that results in a decision process that has three or four means of checks and balances.”

As part of its depopulation effort, the Committee reviewed a proposal that could raise premiums for new Citizens policyholders by nearly 30 percent statewide.  The state-backed “insurer of last resort” handles nearly 1.4 million policies in Florida.

Committee Chairman John Wortman opened the meeting by telling Committee members they had three options, each with pros and cons.  Citizens could:

• Leave new business rates as they are
• Start charging new businesses at the actuarially sound rate, with the new rate change becoming effective in November 2012
• Put a “Glide-Path” into effect for new business, similar to what applies to renewals in order to bring rates to actuarial soundness more rapidly

Citizens’ Chief Financial Officer Sharon Binnun said the information on the possible rate increases should be viewed as a tool and a gauge to help Committee members consider their options.

Citizens President Tom Grady noted that the proposed changes assume a “decoupling of rates,” but also assumed no change in the number of policies that might find their way to Citizens.

“One of the things we have been tasked with doing is to invite and encourage private market participation,” Mr. Grady stated.  “We would anticipate a significant number of our policies if these rates would, in fact, find their way to the private market and closer to actuarial soundness.  That is a very significant assumption.”

Ms. Binnun stated that Citizens’ Staff had been tasked with providing a comparison of capped rates to indicated rates, and that statistics based on the 2013 rates will be available in July 2012.

She said the information on the capped rates and rate indications from the 2012 filing was provided to offer perspective on what might be seen in the 2013 rates.  She said the differential might not be significant.

She reminded the Committee that Citizens’ Board of Governors has the ability to temper or phase in rate indications where the rates are not dictated by the 10 percent Glide Path.

“It is very difficult to think about what additional premium would be generated, because we only know what our existing business is and we don’t know what new business could be,” Ms. Binnun noted.  “The dollar amount  . . . could be potentially greatly overstated.  The growth rate could decrease.”

To view a chart showing the estimated effects of uncapping rates for new policies, click here.

Brian Donovan, director of Citizens actuarial services, said the estimates are based on last year’s indication and current new business if rates were uncapped.

With those parameters in effect, Citizens’ Coastal Account would have a higher average rate impact of about 55 percent, while the Non-Coastal Account increase would average nearly 19 percent, Mr. Donovan said.  Only seven percent of the Coastal Account comprises new business, compared with 30 percent of the Non-Coastal Account, he said.

The additional premium that Citizens would pick up on the Coastal and Non-Coastal Accounts averages approximately four percent of the existing statewide premium, Mr. Donovan clarified, adding that the new business percentage will likely vary a lot.

The assumptions for each territory include a new business percentage based on Citizens’ current book of business, he said.  That percent is then applied to what Citizens estimates the impact will be on the territories.

Citizens Board of Governors Chairman Carlos Lacasa then requested information on the number of new business polices in each county that would be affected by the proposed changes.

Mr. Wortman agreed that having statistics on the 2011 new business policies by territory would be helpful.

“There are real people on the receiving end of this and I want to understand who those people are and where they live,” Mr. Lacasa stated.

Mr. Rollins said that Citizens is guessing at possible future impacts of rate changes, because it is currently relying on last year’s rate indications.

“We are trying to read the tea leaves from last year’s leftovers,” he said.

Mr. Rollins added that new business rates could possibly be reviewed on a discretionary basis, applying a higher, but tempered rate change to the business.

“We could go territory-by-territory and say we are willing to go up more than 10 percent by this much in these territories,” Mr. Rollins stated.

Another option would be to file a rate that is higher and choose to exercise a statute that allows a phase-in of any filed rate, he said.  The Florida Office of Insurance Regulation has the final authority on this action, it was noted.

Mr. Lacasa said that Citizens must review the data carefully, keeping close watch on the gap between actuarially sound rates for each territory and the rate charged.

“At least the public is becoming more and more aware every day,” he said, referring to the insurance costs issues.  He also said the Florida Legislature needs to become more involved in the process.

“We need a total buy-in from everyone in the state.  We can’t do it piecemeal,” Chairman Lacasa said.

Mr. Grady said the awareness is unfortunately creating panic and fear across the state in relation to insurance rates.  He said the concept of depopulation is problematic because in some areas – such as the Tri-County area- alternative insurance markets are very limited.

“When they (insurers) feel they have too much PML (probable maximum loss), they close their ZIP codes,” he explained.

Mr. Rollins agreed that rates cannot solve the problem alone, and that the Legislature needs to get involved and offer guidance and solutions as well.  Mr. Grady agreed such support is essential.

“There are 160 members of the Florida Legislature and there are elected officials across the state. Whether they are policyholders or not, they all have a stake in this,” he stated.

“It’s true that rate shock is a real concern.  It is clearly on our radar,” he added.  He also noted that policyholders across the state have assessment liability and, as such, cannot be passive bystanders.

Citizens’ Chief Information Officer Curt Overpeck noted that new ratings must be implemented by mid-August.

It was suggested that a workshop for all stakeholders be held on July 16, 2012 to further discuss the issues of rates.

In other business, the Committee heard an inspection update by Eric Ordway, Citizens’ senior director of vendor relations.  Highlights follow:

• 180,503 inspections have been fully processed as of April 30, 2012
• $81.5 million is the net estimated cost effect
  • Inspections resulted in an average $600.52 average increase per policy
  • Inspections resulted in a 22.7 average premium increase
  • 68.2 percent of re-inspections resulted in a change in credits
  • 61.7 percent resulted in a decrease in credits
  • 6.5 percent resulted in an increase in credits

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

To access the complete meeting materials, click here.

 

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