Citizens Market Accountability Advisory Committee Meeting Report: June 25

The Citizens Property Insurance Corporation’s (“Citizens”) Market Accountability Advisory Committee (“Committee”) met on June 25, 2009.  To view the complete meeting agenda, click here.

 

General Information

Citizens’ Senior Vice President of Underwriting Paul Palumbo gave a report on Key Performance Indicators and the Combined Month-End Report for May 2009. 

A Committee member inquired whether any performance trends fall outside of Citizens’ normal operation.  Mr. Palumbo replied that due to implementation of the Single Personal Lines (“SPL”) Project, approximately 330,000 personal residential wind-only policies being re-written.  The re-write issue, although temporary, is affecting Citizens’ overall performance. 

To view the Key Performance Indicator Report, click here.  To view the Combined Month-End Report, click here. 

 

Legislative Update

Susanne Murphy, Citizens’ Executive Vice President of Corporate Operations, reported on Florida’s 2009 Regular Legislative Session.  The majority of legislative changes that will affect Citizens were contained in House Bill 1495, which became law on May 27. 

A Committee member inquired whether Florida Governor Charlie Crist’s June 24 veto of House Bill 1171 would affect Citizens.  Ms. Murphy replied that the bill’s veto may influence State Farm to continue with its plans to withdraw from Florida’s property insurance market. 

According to Ms. Murphy, State Farm’s withdrawal, which is anticipated to be orderly, will span two years.  Ms. Murphy offered that it is unlikely Citizens will get all, or even most, of State Farm’s policies.  When asked about the effect State Farm’s withdrawal will have on its agents who also write Citizens business, Ms. Murphy replied that if an agent had an appointment with another licensed company (i.e. State Farm) at the time he or she has initially approved to write Citizens policies, the appointment would be maintained regardless of State Farm’s status in the Florida market. 

A table detailing changes to Citizens as a result of property insurance-related legislation passed during the 2009 Regular Legislative Session may be viewed by clicking here.

 

Rate Filing Update

Mr. Palumbo gave an update on Citizens’ 2010 rate filings.  At the next Board of Governors meeting, scheduled to be held on July 8, a 10 percent cap on rate increases and zero percent cap on rate decreases will be requested.  Because of the wide range of rate indications statewide, the overall rate impact is expected to be eight percent.

 

Agency Services Update

Citizens’ Director of Agent Services Joe Bouthillier reported on recent actions undertaken by Citizens’ Agency Services Department (“Department”) in support of its 8,600 agents at over 6,000 locations.

The Department continually provides training and informational bulletins for Citizens’ agents.  Recent training operations have focused on the SPL Project and wind mitigation.  Citizens has a mandatory training program for wind mitigation and offers an additional two-level course on the subject.  The Florida Department of Financial Services also requires all agents to have at least one continuing education credit on wind mitigation every two years.

The Department also tracks the Florida Market Assistance Program (“FMAP”) and Citizens’ depopulation efforts.  During the month in which State Farm announced its withdrawal plan, FMAP call volume increased 25 to 30 percent.  According to Mr. Bouthillier, at this time it does not appear that those calls have translated into more policies being placed with Citizens.

In 2008, 385,000 policies were taken out of Citizens.  Depopulation has slowed during 2009 due to State Farm’s withdrawal announcement and the increased cost of reinsurance.  To date, 77,956 polices have been depopulated in 2009, which accounts for a reduction of approximately $21 billion in exposure. 

A Committee member inquired whether recent Demotech Florida domestic insurer rating downgrades have had any effect on depopulation.  Mr. Bouthillier replied that the Florida Office of Insurance Regulation (“OIR”) determines which companies may take Citizens policies, and since the OIR vets each company’s financials thoroughly, a loss of rating may affect that company’s permission to take policies.

 

Appraisal Requirements

Mr. Palumbo gave a report on Citizens’ appraisal requirements, an executive summary of which may be viewed by clicking here.

Citizens requires that an appraisal no older than 18 months be submitted for all new Commercial Lines applications, except for Commercial Nonresidential Multi-Peril risks, which are inspected by Citizens.  Appraisals are used to verify underwriting and rating characteristics to ensure the risk is eligible for coverage, verify the presence of mitigation features and confirm the replacement value to ensure the risk properly underwritten. 

Citizens automatically increases the property limit at each renewal according to the Marshall Swift Boeckh (“MSB”) inflation index to ensure the property remains insured to value.  If a policyholder prefers to use an appraisal method other than the MSB, appraisals from licensed property appraisers are allowed.  As long as the appraisal is accurate, a new appraisal should never be required and no co-insurance penalties should be incurred.

A Committee member inquired about the effect that the Chinese drywall issue may have on Citizens policyholders.  Citizens’ President Scott Wallace stated that Citizens has received 10 to 20 drywall-related claims so far, and that the issue is being analyzed to determine whether the removal and replacement of Chinese drywall is covered under the terms of the policy.  Mr. Palumbo stated that workmanship and materials currently are not typically covered in Citizens policies. 

 

Transient Properties/Vacation Rentals

Mr. Palumbo reported on Citizens’ guidelines for short-term rental properties.  Over the past few years, the Florida Hurricane Catastrophe Fund (“FHCF”) has refined its definitions of eligible/ineligible exposures.  In response, Citizens has taken a phased approach to address transient properties/vacation rentals.  The first phase identified properties that are ineligible for FHCF reimbursement.  This began with implementation of new application questions related to the rental usage of personal and commercial residential properties and will be followed by a separate questionnaire for existing policyholders.  The second phase will address the general eligibility of these risks and whether or not Citizens should make any changes to its existing insurance products. 

Citizens Staff has developed a chart detailing transient/vacation property personal residential program eligibility.  To view the chart, click here.  A similar chart is being developed for commercial properties.  The commercial residential multi-peril and wind-only underwriting manuals both stipulate that buildings with more than 25 percent transient occupancy are ineligible for Citizens commercial residential programs.

 

Vacant Dwellings

The Committee continued its discussion from the June 8 meeting on whether to offer wind-only coverage for vacant properties.  Currently, Citizens does not offer any coverage for vacant properties because of the presumption that they undergo less maintenance and storm damage mitigation.  Mr. Palumbo stated that, at this time, he does not recommend changing Citizens’ basic insurability guidelines for the purpose of offering vacant property coverage.

The next Committee meeting is scheduled to be held on Thursday, August 27, 2009, in Tampa.

The meeting was then adjourned.

 

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

 

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