Citizens Mission Review Task Force Meeting Report: January 6

Jan 7, 2009

On Tuesday, January 6, 2009, the Citizens Mission Review Task Force (“Task Force”) met in Tampa, Florida. Chairman Bruce Douglas called the meeting to order with a quorum of Task Force members in attendance. To view the meeting agenda, click here.

The Task Force approved adding the following recommendations to its final report, which is due to the Florida Legislature no later than January 31:

Enacting a transition or “glide-path” so that Citizens Property Insurance Corporation (“Citizens”) may achieve actuarially-sound rates after the Legislatively-imposed freeze is lifted from its rates in January 2010. The glide-path would include three separate rate limits:
- No more than 10 percent per year statewide rate increase by product line
- No more than 15 percent per year increase by territory by product line
- No more than 20 percent per year rate increase for each policy (adjusted for exposure change)
Requiring that Citizens’ new rates be implemented as soon as possible after approval by the Florida Office of Insurance Regulation
Requiring a certificate from all personal residential policy applicants and agents stating that they have either received no coverage offers from the private market, or that any offers received were for 15 percent over Citizens’ rates for comparable coverage. This certification would be included in the policy application and would be covered under Citizens’ perjury notice.
Continuing or improving Citizens’ agent audit procedures to ensure compliance with Citizens’ certification requirement
Expanding the Florida Market Assistance Plan to include listings for all in-force Citizens policies, including those that have not become effective yet, or are eligible for renewal within 120 days
Requiring policyholders with existing homes lying within the 30-year erosion line to purchase flood insurance as the law allows
Not requiring Citizens to write policies for new construction within the 30-year erosion line
Repealing the statute that prohibits agents from speaking to policyholders about the Florida Insurance Guaranty Association

The recommendation to repeal the current affordability language in Florida law pertaining to Citizens was denied, inasmuch as it was deemed unnecessary by Task Force members.

A recommendation that the Legislature define “actuarial soundness” was denied by Task Force members. It was determined that supplying a definition of Citizens in the Task Force’s final report would provide sufficient direction for Legislators.

Lifting the requirement that Citizens must purchase coverage from the Florida Hurricane Catastrophe Fund (“FHCF”) was determined by Task Force members to be outside the scope of their charge, and that mentioning the potential effects on the FHCF’s Temporary Increase in Coverage Limits (“TICL”) layer by lifting this requirement also would provide sufficient direction to Legislators.

Methods for returning Citizens to its former status as Florida’s “insurer of last resort” were discussed. These included:

Increasing Citizens’ rates–Because of the rate freeze currently in place, Citizens’ rates are not competitive with the voluntary market.
Making Citizens’ policy options less attractive to consumers–An example of a less-attractive policy option would be to offer reduced coverage for theft or damage resulting from broken pipe.
Making the details of take-out companies’ policies more readily available–Take-out company policy information is currently available on Citizens’ Web site, but is not widely publicized.
Treating policyholders that reject a take-out offer as new applicants–This requirement would apply to policyholders upon renewal of their existing policies. Citizens would issue a notice of non-renewal, and the policyholder then, in order to qualify for coverage, would be required to submit a certificate stating that he or she could not find voluntary market coverage priced within 15 percent of Citizens’ rates.

Public testimony included a presentation by Gary Appelson, Policy Coordinator for the Caribbean Conservation Corporation and Sea Turtle Survival League, on the Coastal Construction Control Line (“CCCL”) and 30-year erosion line, which is a narrow band of land stretching between the nation’s coastline and area that would be affected by a 1-in-100-year storm. The 30-year erosion line is the area where erosion is projected to occur on a property located within the CCCL during the next 30 years.

Most structures falling within the CCCL are subject to special building requirements, because they are considered the most likely to be affected by storms, and also could damage the beach/dune system, thereby accelerating beach erosion.

Mr. Appelson suggested the following ways Citizens could help protect Florida’s coastline:

Limiting exposure from properties located seaward of the 30-year erosion line
Limiting exposure in CCCL areas that the State has determined need to be moved landward

It was determined that an additional meeting is needed to discuss recommended statutory and operational changes to Citizens recommended for inclusion in the Task Force’s final report. Task Force members scheduled a meeting to be held on January 22, starting at 9:00 a.m. in Jacksonville, Florida.

The meeting was then adjourned.

Supplemental meeting materials are available below:

Should you have any questions or comments, please do not hesitate to contact Colodny Fass.

Media coverage of the meeting included the article below from the St. Petersburg Times:

Citizens rates may jump

By Jeff Harrington, Times Staff Writer

Published Tuesday, January 6, 2009 2:59 PM

Citizens Property Insurance should be allowed to end its three-year rate freeze and start aggressively hiking homeowner insurance rates as soon as next January, a state task force recommends.

The panel, which is studying the mission of the state-run property insurer of last resort, voted unanimously Tuesday to recommend the Legislature cap Citizens’ annual rate increases at 10 percent on average statewide. It also suggests an annual cap of 15 percent for any given territory and 20 percent for any single policy.

The rate increases could hit coastal homeowners and condo policyholders the hardest.

“They need to be paying more. . . . The question is how rates go up in a way that’s affordable and politically digestible,” Bruce Douglas, task force chairman and former Citizens Property board chairman, said during a meeting Tuesday at the Marriott Hotel at Tampa International Airport.

Task force members are urging the state to allow Citizens to begin raising rates as soon as possible after Jan. 1, 2010.

Citizens has to file a rate case with the Florida Office of Insurance Regulation in July. Given that a double-digit rate hike was revoked when the rate freeze went into effect, Douglas believes Citizens could justify rate hikes higher than the caps for several years.

The 10 percent average hike is viewed as a way to ease the pain.

“This is all about limiting the rate increase,” said Belinda Miller, Florida deputy insurance commissioner and a task force member.

Two other task force members agreed that without the caps, policyholders could face much higher premiums. Locke Burt, a former state senator who runs Security First Insurance in Ormond Beach, said the average Citizens’ condo policyholder now paying about $700 would face a maximum increase of about $140 under the cap.

“It’s a lot better than $1,400, which could have been the (new premium),” added Tampa Lawyer William F. “Chip” Merlin.

Despite ongoing efforts to entice private insurers to take high-risk policies back on the market, Citizens Property remains Florida’s largest insurer with nearly 1.1-million policies carrying $412-billion in exposure to catastrophic risk.

In recent years, Citizens has become a popular dumping ground for policies by agents with customers having little incentive to shop around. In part due to the rate freeze, its rates are often cheaper than private marketplace options, and its service and reputation are viewed by some as stronger than insurance start-ups bidding to take some of its policies.

The task force’s mandate is to find ways to let Citizens get back to its roots as a last-ditch insurer that property owners would want to avoid if possible. The most obvious way, Douglas said, is raising rates high enough to become noncompetitive again.

But the task force is also recommending the Legislature consider other steps, such as:

Not writing new Citizens policies for erosion-prone coastal areas based on state and federal guidelines.
Making incoming policyholders and their agents sign certifications that they could not find coverage in the marketplace, or the only offer is more than 15 percent higher than Citizens’ rates.

The task force punted on one of the more contentious issues, tabling debate on whether Citizens policyholders should have the right to object if a private insurer wants to take their policy out of Citizens.

Currently, property owners can “opt out” of having their policy taken out of Citizens by a private insurer. Between 30,000 and 40,000 Citizens policyholders, or roughly 10 percent of those eligible for a “take-out,” have objected. Some are concerned about the financial stability or track record of the insurance company.

Chiding policyholders who consider Citizens as a “lifetime benefit,” Jason Schupp, an executive with Zurich American Insurance Co., supported Burt’s suggestion that someone who refuses a take-out offer be nonrenewed and forced to shop around before re-entering Citizens.

Merlin initially supported taking away policyholder choice, but said he was swayed by testimony indicating some take-out companies misled consumers by offering less coverage than Citizens, albeit at a comparable price.

Scrambling to meet a Jan. 31 deadline to submit its report to the Legislature, the task force has slated what it hopes is its final meeting for Jan. 22 in Jacksonville.

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Citizens Mission Review Task Force Meeting Report: January 6

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