Citizens Actuarial & Underwriting Committee Revises Eligibility, Cancellation Rules; Reviews New Rate Structure Plan

The Citizens Property Insurance Corporation (“Citizens”) Actuarial and Underwriting Committee (“Committee”) held a meeting on Thursday, January 10, 2008 via teleconference to discuss Citizens’ new eligibility and cancellation requirements, rating algorithms, personal lines underwriting and commercial lines underwriting.  

To view a copy of the meeting agenda, click here.

Committee Chairman Dick DeChene called the meeting to order with the following members in attendance:  Carol Everhart, Paul Palumbo, Amy Padgett and Fred Strauss.  Also in attendance were Kimberly Abate, Citizens Director of Actuarial Services, Brian Donovan, Citizens Director of Underwriting, and additional Citizens staff members Loren Gallogly and Beth Penny.  Claims Committee member Jon Palmquist also was in attendance.

The November 15, 2007 meeting minutes were approved with no discussion.

Meeting discussion began with a review of recent Citizens eligibility and cancellation Rule changes, which were precipitated by Citizens having recently become aware that some surplus lines insurance carriers are offering property policies that only provide wind and other coverage outside of hurricane season.

Citizens has resolved that these types of policies are detrimental to the Florida insurance market and could cause a breakdown in the Florida’s wind coverage financial model.

As a result, Citizens recently filed changes to its eligibility and cancellation Rules in order to mitigate the projected negative impacts of the short-term policies in question.

The Rule changes include:

• Not permitting the transfer of coverage into Citizens for a six-month period if the current policy is written on less than an annual term.
• An amendment of the short rate cancellation provision to apply to Citizens wind-only policies that are cancelled mid-term and replaced with coverage that is issued on less than an annual policy term.

Since filing these Rule changes, questions were submitted to Citizens from the Florida Association of Insurance Agents that sought to clarify the changes.  To view those questions and answers, click here.

Mr. Strauss requested the Committee revisit the short-term rate table later in the year to ensure the new rates are properly formulated.

The Committee then voted unanimously to ratify the Rule changes. 

Citizens’ current rating structure was reviewed.  Currently the structure is based on an “additive” formula that treats multiple perils as a whole and does not take mitigating factors into account.

It was explained that the industry is moving toward developing more complex rating structures with individual application of multiple perils.  This is expected to produce more accurate ratings.  However, catastrophe modeling will still play an important role in developing wind base rates.

Staff recommended steps to accomplish Citizens’ own rate restructuring, which are:

• Data development – A comprehensive database of historic exposures and losses will be created.
• Data analysis – Emblem software will analyze data and model data using Generalized Linear Models.
• Implementation of the new rating structure – New rating manuals will be developed.

This proposed new system’s effect on current rates was discussed and it was explained that it is expected to widen the range of premiums to the point that Citizens may have to enact a premium cap in order to avoid 60 percent increases in some instances.  More rate disparity is expected, but more rate fairness and accuracy is also predicted. 

The goal was established that the new rating structure and resultant rates would take effect in January 2009. 

The Committee then voted to proceed with the approach outlined above.

Mr. Gallogly then detailed Citizens’ Personal Lines Accounts (“PLAs”) Departmental achievements for 2007 and previewed its 2008 projects.  These projects are expected to result in major accuracy and customer service underwriting process changes during 2008. 

It was explained that handling of approximately 45 percent of Citizens’ multi-peril business outside the former Florida Wind Underwriters Association territory is shared with the MacNeill Group, a third-party administrator.

PLA underwriting-focused achievements for 2007 included:

• Implementation of new replacement cost valuation system (MSB Standardized Cost System)
• Consolidation and cross-training of the former High-Risk and PLA underwriting units
• Design and implementation of production workbooks that enable close monitoring of productivity at the department, unit and individual employee level
• Establishment of consistency between Citizens and the MacNeill Group’s Quality Assurance Programs

PLA service-focused initiatives for 2007 included:

• Implementation of the use of six industry-standard ACORD forms
• Approval of alternative replacement cost valuation options (R.S. Means)
• Modification of submission requirements to within five days of policy effective date rather than within five days from the date coverage is bound
• Multi-peril binding authority increased to $1,000,000 for Coverage A

Citizens’ PLA Division has several ongoing and current initiatives that are expected to result in major underwriting process changes in 2008:

• Automated Underwriting—Designed to enable personal lines underwriters to focus on those risks that need manual or an individual underwriter’s attention
• Regional Underwriting and Direct Agent Communications—This plan would divide the state into seven underwriting regions in order to improve primary knowledge about each of those areas, and encourage better working relationships between agents and underwriters.
• Training and Development–Underwriting staff will be empowered through cross-training and other curriculum to use discretion and automating for less complicated decisions.
• Agent-Approved Endorsement–This program will enable agents to process endorsements that do not require underwriting intervention.
• Creation of a Renewal Underwriting Team—Resumption of insurance-to-value renewal reviews in order to ensure that Citizens’ homeowner and dwelling fire business is properly insured; along with establishing a formal process of re-underwriting business prior to renewal to determine if the coverage is appropriate relative to the exposure presented. 
• Enhanced Quality Review Process—Citizens is in the process of enhancing the quality function and conducting internal quality audits and mentoring new employees at the team level.
• Mobile Home Replacement Cost Estimator—Currently, Homeowners and Dwelling Fire lines utilize an automated mechanism from MSB that calculates hard copy valuation in ePAS.   Citizens plans to bring the same electronic functionality to mobile homes.

Reporting that approximately 668 policies of the former Property Casualty Joint Underwriters Association remain in effect, and 1,106 new Commercial Inland Wind policies have been written to date, Ms.  Penney then detailed the Commercial Lines Underwriting Department’s 2007 achievements, as well as gave an overview of 2008 projects, among which are:

• Introduction of an ISO-based monoline commercial non-residential multi-peril policy
• Division of the Commercial Lines team into geographic regions
• Automated renewal of multi-peril policies beginning July 1, 2008
• Commercial systems upgrades to allow entry by agents, and whereby agents may quote and enter policies at their level
• Wind underwriting renewal to ensure Citizens’ commercial wind policies are insured to value, with implementation of this project scheduled to begin on October 1, 2008
• Education and training of Commercial Underwriting staff based on materials offered by the Insurance Institute of America and the American Institute for CPCU
• Various internal quality assurance enhancements
• Workflow streamlining of commercial wind policies and improved consistency between commercial multi-peril and commercial wind policies

To view additional documents distributed at the meeting, click here. 

Should you have any questions or comments, please do not hesitate to contact this office.

 

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