Florida Cabinet Reviews Citizens Property Insurance Downsizing Recommendations

At the Florida Cabinet meeting this morning, December 6, 2011, Citizens Property Insurance Corporation (“Citizens”) Chairman of the Board of Governors (“Board”) Carlos Lacasa made a presentation to the Financial Services Commission in which he outlined the Board’s recommendations for reducing Citizens’ size and exposure as requested by Florida Governor Rick Scott.

To access the report, click here.

Chairman Lacasa recapped that the Board had met on November 14, 2011 and formulated 31 recommendations that would require legislative changes.  Additionally, the Board has an additional 14 recommendations that could be implemented without legislative approval.

While the existence of Citizens should not impair the voluntary market, Chairman Lacasa noted, Citizens should still be able to pay its claims.  This is complicated by the issue of rate affordability. 

Chairman Lacasa presented what Citizens would look like if it were the true “insurer of last resort” and only covered coastal properties, older homes, older mobile homes, certain policies in sinkhole areas and older condominium associations.  Under this scenario, it is estimated that 665,674 Citizens policies would return to the private market, leaving approximately 794,308 polices still in force and $313.715 billion of exposure.

The top five initiatives Chairman Lacasa described as most likely to reduce Citizens’ exposure without legislative changes include limiting Coverage B (other structures) to two percent of Coverage A, limiting Coverage C (contents) to 25 percent of Coverage A, eliminating builders risk coverage, limiting coverage in the Coastal Account to $1 million and limiting personal liability coverage to $100,000. 

Additional items being considered by the Board include aggressively pursuing the risk transfer through the purchase of reinsurance.  Chairman Lacasa believes that Citizens needs to be a consistent buyer of reinsurance.

He also announced that he is re-instituting Citizens’ Depopulation Committee and wants it to have advisors from the private market to assist with depopulating Citizens.  The Board also is considering enhanced depopulation efforts, such as surveying the private market to better understand barriers to depopulation, eliminating ceding commissions and reviewing agent commissions. 

Chairman Lacasa noted that Citizens will continue to study the issue of wind mitigation credits, which he said leaves $1 billion in premium “on the table.”  Citizens has been reinserting risks to recapture premium from misapplied mitigation credits.

The key statutory changes that would reduce Citizens’ exposure include changes to rates, such as increasing the “glide path,” requiring rates to be non-competitive and revising eligibility requirements.  Chairman Lacasa pointed out that, while the agents have been valuable partners to Citizens, the Board will consider the value of eliminating the “Consumer Choice” statute, which allows policyholders and agents to decline takeout offers.

Governor Scott asked if Citizens policyholders know the risk of assessments they may be required to pay in the event of a hurricane.  Citizens’ Director of Legislative and External Affairs Christine Turner Ashburn noted that Senate Bill 408 requires policyholders to sign an acknowledgement that they are subject to assessments.  This provision takes effect on January 1, 2012. 

Governor Scott stated that some policyholders may not understand the liability and expressed concern that some insureds may not have the ability to pay the assessment.  Chairman Lacasa noted that, as is the case with any residual market entity, there is a balance between pre-event and post-event financing.  If Citizens raises premiums too high, that money is being taken out of the economy.  A balance needs to be found, he explained.

Governor Scott expressed concern that, if a policyholder is unable to pay the assessment, his or her policy may be canceled, which may ultimately lead to the insured home being foreclosed upon.  He requested that Citizens return to the next Cabinet meeting and explain how it plans to educate policyholders on the issue of assessment liability.

Governor Scott thanked Chairman Lacasa and the rest of the Board for their work on this issue and for their service on the Board.  He stated that he hoped that the Florida Office of Insurance Regulation would approve the initiatives to be filed this month before Christmas.

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