Florida House Insurance and Banking Subcommittee Reviews Citizens Property Insurance Corporation, Florida Hurricane Catastrophe Fund Status
Jan 12, 2011
At the Florida House of Representatives Insurance and Banking Subcommittee (“Subcommittee”) meeting today, January 12, 2011, Citizens Property Insurance Corporation Chief Financial Officer Sharon Binnun provided legislators with an overview of the state-run property insurer. Risk transfer to the private market has been inconsistent because of Citizens’ inability to pass through reinsurance costs into rates, she reported.
During 2010, Citizens’ policy count grew by over 20 percent and now represents 18 percent of the Florida market. Of Citizens’ policies, 60 percent are valued at less than $200,000.
Citizens does not expect to need any additional financing in 2011, inasmuch as its current surplus is almost $5 billion, giving it the ability to pay $13 billion in claims. This would allow Citizens to pay claims for a 1-in-25 year storm without triggering any assessments.
State Representative Bill Hager asked about the timeline during which an actuarially sound rate must be established for Citizens. Of interest was the response that the Citizens’ Commercial Residential Account rates are 200 percent below actuarial soundness.
State Representative John Wood asked whether Citizens should be downsized and, if so, how that could be accomplished. CFO Binnun said she didn’t know exactly why Citizens’ “good” policies weren’t being taken by the private market. She added that, while she felt that free enterprise is the best solution to this issue, the private market needs predictability. Representative Wood also asked whether depopulation is a policy of Citizens, inasmuch as Florida law requires Citizens to be as small as possible.
CFO Binnun said that Citizens would like to be smaller, but that it doesn’t have a dedicated workforce to work with the private market to accomplish depopulation.
Subcommittee Chairman Bryan Nelson asked about the status of Citizens’ wind mitigation credit re-inspection program. Of the residential properties inspected to date, 60 percent of the corresponding policies saw rate increases, while commercial property re-inspections yielded premium increases of 50 percent for a total of over $5 million in premiums.
During public testimony, representatives from the Association of Sinkhole Repair Experts (“ASRE”) explained that they believe proposed new structure damage definitions are troubling. They provided quotes indicating that, of 7,000 sinkhole claims paid in 2009, only 1,000 properties were subsequently repaired.
The ASRE representatives characterized the unrepaired homes as a blight on the community, but identified no source of blame. Instead, they said they believe the real problem surrounding sinkhole claim proliferation is caused by “unchecked” solicitation by contractors, public adjusters and plaintiffs’ attorney.
Florida Hurricane Catastrophe Fund (“FHCF)Chief Operating Officer Jack Nicholson updated the Subcommittee on the FHCF’s exposure growth, which has been 7.57 percent annually and was $2.2 trillion in 2010.
He explained that Florida’s residential market probable maximum loss for a 1-in-100 year hurricane is approximately $54 billion. Texas ranks second to Florida with exposure of $13 billion.
Dr. Nicholson explained that legislative policies allowing for personal gain from insurance claims, instead of indemnification, are damaging Florida’s insurance marketplace. He said that the FHCF is able to charge below-market reinsurance rates because it has zero cost of capital.
Florida Office of Insurance Regulation (“OIR”) Deputy Insurance Commissioner also testified, opening her remarks by emphasizing the need for the Legislature to address issues relating to replacement cost.
Florida’s residential property marketplace has many more participants than it did in 1990, she explained, so the number of insurers isn’t the cause of high rates.
Ms. Miller indicated her skepticism about the effectiveness of using a flex band for rating. The OIR may seek to implement capital requirements for new insurers similar to those outlined in SB 2044, the 2010 comprehensive property insurance package that was ultimately vetoed by then-Governor Charlie Crist.
She also highlighted the necessity for Florida to enter into a surplus lines tax agreement, pursuant to federal law, or risk losing substantial tax revenues.
To view complete materials from today’s meeting, which include fact sheets, presentations and additional materials recommended by Representative Nelson, click here.
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