Citizens Property Insurance Corporation Market Accountability Advisory Committee Meeting Report: March 29

 

The Citizens Property Insurance Corporation (“Citizens”) Market Accountability Advisory Committee (“Committee”) met on March 29, 2011.  To view the meeting materials, click here.

Update on Process for Insolvent Insurers/Re-Submissions

Following Committee approval of the prior meeting’s minutes, Joe Bouthillier, Citizens’ Director of Personal Lines Underwriting, provided an update on what Citizens has done to prepare for potential future insurer insolvencies.  Mr. Bouthillier stated that discussion at a prior Committee meeting had centered on the workload created by the insolvencies of Magnolia Insurance Company and Northern Capital Insurance Company in 2010.

Committee Member Dave Newell said that First Home Insurance Company is in the process of a merger on the personal lines side and asked whether a potential influx of new commercial residential submissions to Citizens had been discussed.  Mr. Bouthillier responded that, to his knowledge, a discussion had not occurred.

According to Mr. Bouthillier, Citizens previously had the ability to extend the premium payment deadline for policyholders who are in the process of obtaining premium refunds from defunct companies.  A Committee member stated that, for large insolvencies, Citizens has been able to arrange for policyholders to receive returned premiums immediately or, if applicable, for the Florida Insurance Guaranty Association (“FIGA”) to transfer funds to Citizens.  However, in smaller insolvencies, this can create a “data mess” for Citizens, FIGA and the insolvent company, it was explained.

A meeting participant suggested that Citizens should do what a receiver normally would do during rehabilitation proceedings, such as taking control of a company’s data systems.  She said that this would not be ideal in situations other than those involving a large book of business.  This allows for policyholders to not have to re-apply right away, thus allowing for better management of the volume.  

A bill pending before the Florida Legislature would provide for the Florida Office of Insurance Regulation (“OIR”) to allow an insurer to cancel policies in the event it is threatened with insolvency.  For example, if an insurer determines just prior to hurricane season that it is unable to purchase sufficient reinsurance, the legislation would allow the policies to be cancelled on shorter notice.  According to the participant, it remains to be seen whether this provision will survive as part of the property bill currently being negotiated.

Inspection Program Update

Eric Ordway, Citizens’ Senior Director of Insurance Operations, updated Committee members on Citizens’  2010 Inspection Program (“Program”), which is being transitioned to a multi-vendor Program with three administrators.  The 2011 Program is scheduled to begin on April 7, 2011. 

As of February 28, 2011, 49,886 building assignments were made under the 2010 Program and, of those, Citizens has completed underwriting processing on 20,045 inspections.  This will result in estimated personal and commercial lines premium increases of $9.9 million when those policies renew. 

Of the remaining 29,841 assignments, 15,284 have been postponed and will be reassigned to the 2011 Program.  Citizens Underwriting Department is processing approximately 8,600 of the 14,557 open building assignments that have not been postponed.  Approximately 5,957 are scheduled for future inspection. 

Mr. Ordway said that postponed assignments include those that were part of the temporarily suspended commercial inspection program and residential policies with incomplete or outdated policyholder contact information.  He also cited lack of responsiveness from the agent community as a factor.

In response to a Committee member’s question about agent awareness, Mr. Ordway explained that, when an inspection is assigned, agents can access the notice sent to the policyholder via the Citizens Electronic Policy Administration System (“ePAS”).  He added that, during the 2010 program, Citizens had a combination of inspectors, inspection management companies and the program administrator, Inspection Depot, contacting agents to follow up on policyholder contact information.

Steve Bitar, Citizens’ Director of Consumer and Agent Services, said that inspectors are tasked with contacting policyholders once inspection assignments are made.  He said that in many cases, especially with policies that have been with Citizens for long periods of time, policyholder contact information has changed or was not provided at initial submission.  In those instances, agents were asked for the correct contact information.  While the response rate was not high, according to Mr. Ordway, Citizens had no systematic way to track responses according to policy and specific agents. 

Mr. Ordway said that in the future, Citizens will have access to better tracking statistics.

He then discussed trends from both the residential and commercial portions of the 2010 Program as of February 28, 2011.  Of processed inspections, 73 percent resulted in a change in premium, with the average dollar premium change being $442 per personal lines residential policy, which is down six percent from the January 2011 report.  He said that 52 percent of the approximately 2,600 commercial inspections processed under the 2010 Program resulted in a premium change, with the $3,824 average dollar premium change being a six percent increase from January.

He further noted that, due to limitations of the current commercial policy systems, previous commercial building count numbers did not include 696 buildings on assigned policies.  Challenges with the current system include the way data is stored and the lack of ability to accurately extract and separate building counts from other special class items.  Mr. Ordway said that the Citizens CORE Systems solution will address these problems when it becomes available.

The Personal Lines Account staffing model has been finalized, according to Mr. Ordway, who also explained that Citizens’ Underwriting Department currently has 51 processing staff members and a weekly production capacity of 3,000 to 3,500 inspections to support finalization of both the 2010 and 2011 Programs. 

He said that the 2011 Program, which will have three vendor administrators, is slated to begin on April 7, 2011.  When attempts to schedule inspections fail, Citizens will now send notifications to agents through ePAS that policyholder credits will be removed if no response is received within seven days. 

A Committee member noted prior problems pertaining to attic access during the course of inspections.  Mr. Ordway responded that if inspectors do not bring appropriate equipment such as ladders, agents and policyholders can notify Citizens.  In some cases, field re-inspections with an inspection program administrator present can be conducted.  Citizens will use information gathered from policyholders to both reward and discipline inspectors according to error and dispute rates. 

New Business

Underwriting Manual Inconsistencies

A Committee member raised the issue of inconsistencies relating to commercial residential and commercial policies in Citizens’ underwriting manual.  He stated that agents are being verbally notified of changes when they rewrite policies, but such changes are not consistent with the written manuals.  For example, the usage of a condominium structure can change its classification from commercial residential to commercial if retail space occupies more than 25 percent of the building or if transient occupancy surpasses a particular level.   This is a provision currently in use by the Florida Hurricane Catastrophe Fund (“FHCF”), according to a Committee member. 

Another member stated that, although the 25 percent usage is determined at the time of application submission to Citizens, ongoing inquiries of policyholders should be conducted.  He said that the FHCF conducts an evaluation audit in the event of a condominium claim to determine whether it will be covered.

Members agreed that the underwriting manual should be “crystal clear” on classification issues.

Aluminum Wiring

A Committee member inquired about coverage for homes containing aluminum wiring and said that he had not seen any information quantifying that a risk exists.  Another member responded that Citizens uses “industry standard information” and that a Citizens claims consultant who conducted a study on the issue could provide an overview at the next Committee meeting. 

Susanne Murphy, Citizens Chief Administrative Officer, said that a bulletin issued in September 2010 to clarify existing requirements for acceptable documentation for homes with aluminum wiring brought the issue into starker contrast.  She stated that if risks are eligible, they must be sufficiently remediated to reduce the risk that would otherwise exist. 

Agent Issues

Discussion then turned to how Citizens can “police” applications with regard to applicants not disclosing offers from other insurers that would disqualify them from Citizens coverage.  Ms. Murphy said that, aside from having an automated clearinghouse storing every quote ever issued by an insurer for property insurance, there is no way to prevent this problem.   If consumers do not properly disclose such offers on their applications, Citizens can cancel or non-renew the policy, or perhaps rescind it because of fraud.  

Agents are not supposed to place business with Citizens if another qualified offer exists.  She said that Citizens and the Florida Legislature are trying to come up with a way for agents to understand and abide by the rules, while disciplining those who do not. 

Future Meetings

The Committee is next scheduled to meet in Naples, Florida on July 12, 2011.

With no further business, the meeting was adjourned.

 

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

 

 

To unsubscribe from this newsletter, please send an email to bellis@cftlaw.com.