Florida Office of Insurance Regulation Reviews Citizens Property Insurance 2014 Rate Filings

 

The Florida Office of Insurance Regulation (“OIR”) held a public rate hearing for Citizens Property Insurance Corporation (“Citizens”) today, August 27, 2014.

Florida’s Insurance Commissioner Kevin McCarty conducted the hearing on behalf of the OIR, while Citizens’ President and CEO Barry Gilway, and Chief Risk Officer John Rollins presented on behalf of the State-run insurer.  Florida Insurance Consumer Advocate Steve Burgess represented his office.

Citizens’ requested statewide average rate changes for its Coastal Account (“CA”), Commercial Lines Account (“CLA”) and Personal Lines Account (“PLA”) include, but are not limited to commercial property, homeowners, mobile home, and dwelling/fire. 

To view the proposed rates and exhibits by county, click here.

The proposed rate changes include total increases for sinkhole coverage of 0.7 percent to DP-1 (Dwelling/Fire), 1.5 percent to DP-3 (Dwelling/Fire) and 2.7 percent to HO-3 (Homeowners).

The effective date of the proposed rate changes for the CA and CLA/PLA would be February 1, 2015 for new and renewal business.

Mr. Gilway related that Citizens’ successful depopulation efforts, its new Clearinghouse, and successful risk transfer program have substantially reduced its storm risk and assessment burden.

Replying to Commissioner McCarty’s request for a summary of Citizens’ recent experience in the reinsurance and risk transfer market, Mr. Gilway explained that the reinsurance market has responded positively to Citizens’ data.  Meanwhile, general market conditions have lead to savings in risk transfer. 

Commissioner McCarty remarked that, in the past, there has been concern that if Citizens’ purchased private reinsurance, that action would diminish market capacity, leading to rate increases for Florida carriers.  He added that he has seen no indication that Citizens’ recent risk transfer activities have had any negative impact on Florida carriers.

Mr. Gilway stated that, in his opinion, Citizens’ entry into the risk transfer market actually benefitted Florida’s private carriers because there was likely more capacity generated by its participation.

Mr. Rollins testified that 70 percent of Citizens’ policyholders will see a decrease in premium from the rate filings in question because of adherence to the mandated glide-path, which has resulted in rate adequacy.

Additionally, Citizens’ net cost of risk transfer has declined substantially, which has also contributed to the rate decrease, it was explained.  Further, because the past years of hurricane seasons have been relatively quiet, the anticipated loss from them has stabilized.

Nevertheless, Citizens’ wind-only and CA policies will see rate increases, since they have not yet met the glide-path goals, thus requiring further hikes.  Other than a 10 percent increase for Hernando County, Citizens’ has recommended no rate change for sinkhole coverage.  The reduction in sinkhole claims can be directly linked to the success of SB 408’s implementation, it was noted.

Kayne Smith, an OIR actuary, asked for an explication of how Citizens’ selected the overall indications for its homeowners filing.  Brian Donovan, Citizens’ Chief Actuary and Director of Actuarial Services, indicated that the zero percent increase “fell in the middle” of the model results.  Ms. Smith asked if Citizens evaluates different hurricane model results to see if the changes in them are relative to each other. 

Paul Kutter, Citizens’ Manager of Actuarial Research, indicated that models are evaluated for stability on an annual basis.  OIR General Counsel Belinda Miller asked the Citizens representatives to confirm that they are not averaging models results.  Mr. Kutter confirmed that Citizens is not averaging model results.

Ms. Smith asked why Hernando County was the only county where a rate increase was indicated for sinkhole coverage.  Commissioner McCarty echoed her question, asking how Pasco County was any different.  In response, Mr. Donovan stated that Hernando was a strong outlier on all actuarial indications. 

Mr. Gilway, Mr. Donovan and Ms. Miller all made statements to the effect that the rate increase in Hernando County is due an unusual number of sinkhole claims made under the law that was in effect prior to SB 408.  Hernando policyholders had been making claims for sinkhole damages, in which they that the sinkhole first became apparent four or five years prior.  Ms. Miller stated that she hoped Citizens was closely evaluating the validity of such claims.

OIR Deputy Commissioner Rich Koon asked if Citizens has had many claims for catastrophic ground collapse.  Mr. Donovan indicated that Citizens has not had many such claims.

Ms. Smith asked why rate decreases were capped at 10 percent, even though all four models indicated a decrease of more than 10 percent in certain territories.  Mr. Rollins stated that a cap on decreases has been implemented in order to comply with all of the different statutes governing Citizens’ rates, as well as to establish more constancy throughout all lines of business.  Ms. Smith affirmed that, even though the OIR has approved the 10 percent cap on rate decrease in the past, there has not been a filing with such large indications for rate decreases that they have been prevented by the 10 percent cap.

Steve Burgess, Florida’s Insurance Consumer Advocate, asked how the Florida Hurricane Catastrophe Fund’s (“FHCF’s”) rapid cash build-up factor impacts the 10 percent rate increase cap for Citizens’ policyholders.  Mr. Burgess said that, in the past, there have been rate increases in excess of 10 percent due to the rapid cash build-up factor, which Mr. Donovan described as having stabilized due to reaching its statutory limit.  This is expected to mitigate rate increases of over 10 percent. 

The OIR will continue to accept written comments on the Citizens’ filing until September 3, 2014.

Today’s meeting materials are accessible through the hyperlinks below, or on the OIR’s Citizens rate hearing Web page here.

• Agenda
• Media Advisory
• Presentation – Citizens
• Presentation – OIR

 

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