Citizens Property Insurance Considers Supporting Statutory Changes to Accomplish Downsizing; Components of Senator Alan Hays 2011 Bill Considered

During a marathon Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) meeting yesterday, November 15, 2011, Board members considered a number of possible statutory changes that would serve to reduce Citizens’ size.  Many of these changes would resurrect a failed proposal last year by Senator Alan Hays that contained many controversial components.

To view yesterday’s presentation on the proposed changes, click here.

The proposed statutory changes include:

• Increasing the current statutory glide-path to accelerate actuarially sound rates, and restricting the glide-path to a specified number of years
• Create a more specific definition of “actuarially sound” rates as applied to Citizens
• Revise Citizens’ statutory eligibility requirements
• Amend and ultimately phase out the 15 percent eligibility rule.  The 15 percent threshold would be changed to 25 percent.  The statutory eligibility rule would be sunsetted to coincide with the end of the glide-path.
• Eliminate policyholders’ and agents’ ability to decline a takeout offer.
• Enact statutory language specifying that Citizens is the “insurer of last resort.”
• Allow Surplus Lines insurers to participate in depopulation.
• Eliminate Commercial Non-Residential Coverage.
• Remove new business from glide-path restrictions.
• Allow Citizens to pass through the cost of risk transfer outside of the glide-path.
• Reinstitute a prior statutory provision to prohibit Citizens from reducing rates.
• Prohibit the appointment of new agents and agencies.
• Set maximum coverage limits for all lines of business.
• Consider statutory coverage changes.
• Eliminate coverage for all detached structures.
• Require Citizens to offer only basic coverage, not coverage equivalent to HO-3 (named perils policy)
• Re-evaluate wind and hurricane deductibles.
• Eliminate non-coastal HO-4 and HO-6 policies.
• Evaluate required coverage limits.
• Increase the minimum All Other Perils deductible.
• Ensure Citizens rates are non-competitive by requiring that each rate filing include an industry expense equalization factor including a factor for risk load.
• Prohibit private insurers from offering a multi-line discount if the property insurance policy is written with Citizens
• Require annual proof that voluntary coverage is not available before renewing with Citizens.
• Implement very limited payment plans such as no mortgagee billed or 100 percent full payment required.
• Limit Citizens to writing only wind policies.
• Commission a mitigation study to re-evaluate wind mitigation credits.
• Re-evaluate the process for applying for wind mitigation credits.
• Conduct a survey of voluntary market carriers to better understand barriers to depopulation.
• Reduce or eliminate ceding commissions.
• Conduct a valuation of Citizens’ book of business.
• Expand application of A Rates.
• Cease issuing new commercial and personal lines builders risk policies and allow the in-force book to roll off.
• Review agent commissions.
• Re-underwrite the book of business, including replacement cost calculation and “increase of hazard” consideration.
• Reduce the number of agents writing Citizens business by implementing mandatory training and submission quality review.
• Invest significantly in Citizens fraud investigative teams to enhance fraud detection efforts.
• Add language to the policy that prohibits the use of public adjusters.
• Post information on Citizens’ Web site about appointed agents (number of years appointed, number of violations, lines of business written).
• Consider additional risk transfer options (traditional reinsurance and/or catastrophe bonds).
• Eliminate the prohibition of takeouts in consecutive months.
• Publish Citizens’ algorithm for allocating policies tagged for takeout by multiple insurers in the same window.
• Evaluate additional new business inspection criteria.

A report on the meeting by THE NEWS SERVICE OF FLORIDA is reprinted below.

To view the entire meeting packet, click here.

 

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

 

CITIZENS BOARD BACKS REDUX OF 2011 BILL

By MICHAEL PELTIER
THE NEWS SERVICE OF FLORIDA

THE CAPITAL, TALLAHASSEE, November 14, 2011……Pressured by the governor and Cabinet to come up with specific fixes, governing board members of the state-backed insurance pool on Monday said they’ll resurrect a legislative proposal that died earlier this year with the hope it will be considered more favorably during a redistricting and election year session.

Meeting in Orlando, the board members of Citizens Property Insurance Corp. admitted that substantive change may not be in the cards as lawmakers return in less than two months for the 2012 session, but chairman Carlos Lacasa said it was important that the board be aggressive in its efforts to revamp the insurer that now handles nearly 1.5 million policies in some of the most hurricane-prone regions of the state.

Board members on Monday said they will work from a template offered last year by Sen. Alan Hays, R-Umatillla, that fell by the wayside as interested parties sparred over numerous portions of the controversial bill.

Tasked by Gov. Rick Scott and the Cabinet earlier this month to come up with a slate of recommendations for them to consider at their next Cabinet meeting Dec. 6, Citizens officials said they have little time to make up a whole new legislative package from scratch.

Hays’ initial proposal – a starting point again for Citizens in the coming session – allowed the company to raise premiums by up to 20 percent a year, after years of having rates frozen, most recently allowing for a 10 percent increase at most.

Beyond the rate hikes, the bill would have ratcheted down the value of homes that Citizens could insure. By 2016, the home would have to be valued at $500,000 or less to be eligible for Citizens coverage under the proposal.

Among the other provisions from the 2011 legislation that board members say they’ll support in the coming year is a prohibition on the use of public claims adjusters by Citizens customers. Public adjusters work with consumers to try to get claims paid by the company – and have been criticized by the insurance industry for unfairly reopening claims that shouldn’t have been reconsidered.

Citizens will also likely again back a prohibition on the company from offering commercial, non-residential policies, part of an effort to shrink the company’s book of business that would force it to shed about 8,300 policies.

Last session’s bill also would have prevented insurers from levying assessments on non-Citizens policies until policyholders within the pool are charged a 15 percent surcharge to be paid upon renewal, termination and cancellation.

With lawmakers expected to fight over redrawing political boundaries and a tight presidential race ahead in the key swing state, Citizens officials say they are not overly optimistic about what lawmakers will be able to achieve this session on the controversial insurance issue, especially since it targets residents in the voter rich coastal regions.

“The legislative process is extremely unpredictable,” said Citizens Vice Chairman Rob Wallace, a former lawmaker.

Though a valid concern, Lacasa, also a former lawmaker, said it is imperative for the board to at least begin the process of making significant changes to Citizens sooner rather than later.

“I would hate to squander a session,” Lacasa said.

 

 

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