Citizens Property Insurance Hears Suggestions for Depopulation at Summit

 

How can Citizens Property Insurance Corporation (“Citizens”) best reduce its policy count? That was the focus of the Citizens Depopulation Summit (“Summit”) held today, June 1, 2012 in Tampa.  Discussion at the event drew comments and suggestions from an array of insurers, legislators, trade associations, and insurance industry experts who mulled the complexities of downsizing Florida’s “insurer of last resort” and offered possible solutions.

Suggestions included creating a “realtor’s roundtable” to offer input, establishing agent rewards for steering policies away from Citizens, modifying the legislatively mandated “glide path,” requiring all insurers in Florida to write multi-peril policies, and forming a windstorm pool.

Speaking before a packed room, Citizens’ Depopulation Committee Chair Chris Gardner noted that Citizens’ direct written premium is currently four percent-equating to $32 million under budget; that premium ceded to take-out companies totals $38 million or 450 percent higher than budgeted; and policies in force are currently six percent or $89,000 below budget.

“We’re getting less new business than we expected,” Mr. Gardner said.

Citizens Board of Governors member and Summit moderator John Wortman began the event by explaining that its aim was to discuss strategic and tactical changes that Citizens might consider to assist in depopulation.  He noted that a recent survey conducted by Citizens yielded the following top concerns regarding depopulation:

• Ability to charge adequate rates
• Availability and cost of reinsurance for assumed business
• Quality and availability of data from Citizens to evaluate policies
• Ability of an insurer to select policies without regard to geographic location
• Loss ratio of polices to be assumed

Florida Office of Insurance Regulation General Counsel Belinda Miller then touched on the rate issue, explaining that, when a company makes a rate filing, there is an indicated rate-based on an actuary’s estimate on what is needed to cover losses and for private companies to realize profit-and a selected rate.

“When you hear someone say, ‘I have an indicated rate or a rate need, the important question is to ask, “Based on what?”” Ms. Miller said.

The rate issue must be ” . . . addressed in a way that is not punitive to people (and) in a way that does not price people out of the market,” she stated.

The issue is complicated because every company has a different view of what comprises an appropriate rate, she said. In some instances, depopulation is complex because insureds are also wary of takeout carriers due to concerns about financial stability, she added.

Dulce Suarez-Resnick, a South Florida agent, suggested the possibility of disallowing the “opt-out.”

“Maybe it’s time for a little tough love and say your policy is coming out of Citizens and it’s going to leave, you can’t stay,” she said.  She explained that she called it “tough love” because the rate of the new policy is an unknown, and that client questions about whether a particular insurer is a “good company” also can be difficult to answer.

Several insurance industry representatives and lawmakers offered their own suggestions.

Realtor and independent insurance agent Frank Kowalski of Metro-Dade Realty Inc. suggested using a “realtor roundtable” to provide input on how Citizens could best implement the desired change.

He said his agency business is comprised of one-third Citizens policies and two-thirds private carriers and that he does everything possible to keep policies out of Citizens.  The task is difficult because his clients are mostly located in South Florida and the Keys, but that difficulty is why realtor input is important, he explained.

Mr. Kowalski noted how realtors provided input on replacement cost analyses that involved appraisals before the final language was codified this year in House Bill 1101

“We think the Florida real estate market is recovering and we think it is one of the major impacts for the economy of the state of Florida,” Mr. Kowalski said. “Florida realtors would appreciate more opportunities for direct access and input to the (Citizens) Board (of Governors).”

Changes can have significant, detrimental effects, he pointed out.

He said the transient rental market in the Keys has been reclassified as “commercial” for rating purposes, thus raising premiums and adversely impacting the local economy. The effect is far reaching:  Vacation rentals in the Middle Keys represent $97 million to local economy and vacation rentals in all the Keys represent $160 million in revenue, he said.

An incentive for depopulation might be the consideration of a preferred agent status and include some type of reward for agents who seek outside markets when possible instead of selling Citizens policies, he suggested.

Maria Wells, chairman of the Florida Realtors Insurance Subcommittee, urged caution, warning that the “delicate” recovery of the local real estate market would cease if property insurance is unavailable to buyers.

“Home sales will come to a standstill,” Ms. Wells said.

Annalise Mannix of Builders Risk/Fair Insurance Rates in Monroe (FIRM) said property sales are being shut down in the Keys because of property insurance issues.  She urged careful consideration of any change, instead suggesting a modified a glide-path based on premium size, increasing above 10 percent for lower premiums.  She wondered if Citizens could deduct storm surge-related costs from its premiums to help reduce the Coastal Account probable maximum loss and whether Florida lawmakers could require all property insurers to provide multi-peril insurance in all counties like other states.

A representative from GeoVera Specialty Insurance Group said Florida Governor Rick Scott and the Cabinet should consider looking into a passing a law that provides for a class of insurance to be an “export list.”

“(Under the export list scenario) You don’t have to do a due diligence search, you don’t have to charge higher rates than those being charged in Citizens, and you wouldn’t have to provide worse coverage,” he stated.

Florida Senator Mike Fasano, who represents Pasco County and is a vocal opponent of many recent depopulation measures, urged Citizens to consider the possibility of asking the Governor and Legislature to create a windstorm pool and let private companies write everything else as a way to reduce liability.

He said recent measures resulting in reduced homeowner coverage have hurt homeowners who have nowhere else to turn.

“Citizens is, for many, the only game in town.  There is no other place for people to go and get policies. People come from all over the state to make it clear to you they can’t find a policy anywhere else,” Senator Fasano said.  “Take that into consideration before you start making any major changes to try and force people out, raise premiums.  You will have a major negative impact on our housing industry.”

Jeromy Harding of Barnett-Harding Insurance said Citizens’ replacement cost estimator needs to be adjusted because it registers double what buyers paid for their homes.

Mr. Wortman said Citizens is aware of the concern and is looking into an actual cash value contract, or one that offers replacement cost less depreciation.

Other concerns included the following:

• Consumer wariness about the strength of take-out companies
• Confusion over depopulation letters that neither indicate what the new premium will be
• Concern that the letters sent out by depopulation companies are not creative enough

Jeff Grady, President of the Florida Association of Insurance Agents, characterized the depopulation issue as “fairly simple.”  Areas where Citizens is “it,” he said, should be treated differently.  But, in areas where other options exist, Citizens should be made less desirable as an option, he said.

The notion of “decertification” – meaning, the process of evaluating certain areas and effecting different eligibility for Citizens due to a lack of availability of other insurance – might be something to consider, Mr. Grady added.

“Understand where you are the only market in that territory and, in those other territories, set eligibility requirements that make Citizens hard to access and make it hard for your agents to take it there if that is their only offer they can make to the client,” he explained.

Florida Peninsula was cited as a company that has done exceptionally well at keeping agents informed during the depopulation process by sending out reminders about the number of policies eligible for depopulation, how many policyholders opted out, and so on.

Paresh Patel from Homeowners Choice, which specializes in takeouts, said his company has completed eight takeouts involving more than 100,000 policies.  Homeowners Choice was able to offer a five percent discount over the rates offered by Citizens.

He said in Florida there are three choices regarding insurance:  Get insurance from a company that loses money on you, get insurance from a company that makes money on you, or get no insurance at all.

Of Citizens’ 1.5 million policyholders, about a million are paying adequate rates, while a half-million are paying such low rates that the other million are subsidizing them, Mr. Patel stated.

If Citizens’ rates were adequate and insurers were making money, there would be a line “out the door” of people wanting to take the policies, he noted. 

“If you really want to depopulate Citizens, you need people to come in and say I will take these policies because I think I can make money writing those risks,” he said.

He said that, over time, the depopulation issue will be cured by the glide-path.  As more policies’ rates become adequate and are deemed profitable, the policies will be taken out of Citizens.

In closing, Citizens Chairman Carlos Lacasa said the input from Summit participants provided helpful guidance and assured participants that Citizens would follow up on their ideas.

With no further business to discuss, the meeting was adjourned.

To view the meeting agenda, click here.

 

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