Citizens Mission Review Task Force Meeting Report: November 20

Today, November 20, 2008, a representative of Colodny Fass attended the Florida Citizens Mission Review Task Force (“Task Force”) meeting in Orlando, Florida.  Bruce Douglas, the Task Force Chairman, opened the meeting by stating that the Task Force should focus on rates, reinsurance and mitigation.  After approval of the previous meeting minutes, public comments were taken.

The only speaker during this segment was Florida Association of Insurance Agents Executive Vice President Scott Johnson, who spoke in favor of “significant, meaningful depopulation” of Citizens Property Insurance Corporation (“Citizens”) that would not trigger repopulation.  In the past, repopulation has occurred, causing policies to be unnecessarily returned to the involuntary market.  Mr. Johnson also advocated for requiring Citizens policyholders to carry flood coverage.

According to Chairman Douglas, Citizens is doing a good job of depopulating itself in the current market.  He noted that the Personal Lines Account (“PLA”) has decreased by approximately 40 percent or 400,000 policies.   

The Task Force members asked Mr. Johnson a series of questions that prompted a lengthy discussion.  Task Force Member Locke Burt questioned the public purpose of Florida’s wind pool.  Calling Mr. Burt’s remark “a philosophical question,” Mr. Johnson rhetorically asked in response, ”  . . . why have the other coverages?”

Mandatory flood coverage for Citizens insurance policies was discussed.   While it was agreed that this could be a good idea, it is not clear whether the Task Force eventually will make this recommendation.

A question arose about how Citizens can be depopulated in markets where no competition exists, such as in Monroe County.  In response to Mr. Johnson’s reply that a voluntary market must exist in this situation, Chairman Douglas noted there is very little or no depopulation in the Citizens High-Risk Account and proposed eliminating the wind pool because it may encourage more depopulation.

The Task Force spoke unfavorably about the practice by major insurance carriers of eliminating wind coverage, while keeping underlying coverages so that they can provide automobile premium discounts.  This practice was made possible through 2008 legislation, and Florida Office of Insurance Regulation (“OIR”) Deputy Commissioner Belinda Miller noted that the practice, which is used primarily by State Farm, is not illegal. 

Ms. Miller also agreed that it makes sense to consider requiring mandatory flood insurance for Citizens policyholders. 

Mr. Johnson provided his recommendations on changes to the current laws.  He added that he felt there should be competitive rates, coverages and assurance that Citizens has claims-paying solvency.

Task Force member Jason Schupp summarized the discussion into two issues the Task Force should consider and develop: 1) standards/criteria for eligibility for a policy to be written by Citizens, and the enforcement mechanism for these standards, and 2) what type of coverage is appropriate for Citizens to offer.

Mr. Burt also asked for consideration of two issues: 1) the companion policy discount (i.e. the aforementioned State Farm issue), and 2) the Florida Insurance Guaranty Association’s (“FIGA”) guarantee of policies. 

Mr. Johnson noted a that legislative proposal is planned for this year to examine the elimination of a law that restricts insurance companies and agents from disclosing FIGA guarantees.  He added that the agents feel like they can’t provide consumers with adequate information due to this outdated law.  Chairman Douglas suggested that the Task Force should recommend repealing this law.        

Charles Gauthier of the Florida Department of Community Affairs Division of Community Planning gave a presentation on growth management planning for the purpose of discouraging construction in high-risk areas.  Discussion ensued regarding Citizens supporting proposals that reduce new development in high-risk areas, and on changing the definition of Coastal High Hazard Areas, which currently exist within a very irregular area of the Category 1 storm surge line on corresponding maps. 

Citizens Senior Vice President of Underwriting Paul Palumbo spoke about the role, make-up and purpose of Citizens.  Citizens, which handles a significant number of non-catastrophe claims, also insures a majority of older homes.  Options for upgrading underwriting criteria include increasing premiums.  During discussion, Chairman Douglas noted that, as a result of Citizens’ rate structure, premiums on older homes on the coast are subsidized by all other policyholders. 

Challenging the assertion that Citizens writes coverage that the private market will not, Mr. Burt noted that because of Citizens’ low rates, the private market is unwilling and unable to compete and write at a comparable rate. Mr. Douglas noted that Citizens premiums are “woefully” low, particularly in the high-risk areas.  Mr. Palumbo responded that Citizens will make its best effort to ensure adequately sound rates when the legislatively-mandated rate freeze expires in January, 2010.

Ms. Miller addressed the private market capacity to absorb Citizens policies and provided a comparison of Florida insurance rates.   She noted that the State’s Insurance Capital Incentive Build-Up Program (“Program”) had increased activity in the market and contributed to increased private market capacity.  She stated that $527 million additional premium could be written as a result of the Program, assuming a 3.7 writing ratio.  Also, there exists $70 million in additional capacity resulting from the OIR Order requiring Allstate to write 100,000 additional policies.  In total, approximately $1.2 billion in additional capacity could be absorbed by the private market. 

Ms. Miller also discussed rate comparisons by county on average, revealing that Citizens rates are higher, although their rates are not necessarily higher in specific areas.  Ms. Miller does not advocate for setting Citizens rates based on the top 20 companies writing in Florida.  She also noted that the OIR has the option to phase in rate increases when Citizens makes its new filing.  Upon request from Mr. Burt, Citizens staff agreed to review its rating methodologies and provide some information to the Task Force.

Chairman Douglas noted that there should be restrictions on what Citizens will insure insofar as new construction, such as limiting insurable value along Florida’s coast.    

The next Task Force meeting is scheduled for December 10, 2008 in Jacksonville, FL.  Agenda items include:

1. Review/recommendations of statutory requirements
2. Towers Perrin Report
3. St. Petersburg Group:  Solving the Dilemma of Florida Hurricane Risk

 

Supplemental meeting materials are available below:

• November 20, 2008 Meeting Agenda
  
• Minutes from the October 10, 2008 Meeting
  
• Presentation/Review/Recommendations of Statutory Requirement (h)
  
• Presentation/Review/Recommendations of Statutory Requirement (g)
  
• Review/Recommendations of Statutory Requirements (a) – (f)
  
• Towers Perrin Report Part 1
  
• Towers Perrin Report Part 2
  
• St. Petersburg Group: Solving the Dilemma of Florida Hurricane Risk
  
• FAIA Public Testimony

To view a report on the meeting proceeds, click here.

 

Please do not hesitate to contact Colodny Fass should you have any questions or comments regarding the Task Force.

 

 

 

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