Florida’s Citizens Property Insurance Corporation Board of Governors Announces Travel Policy, Approves Commercial Rate Increases, Modifies Sinkhole Coverage Rules

 

At its meeting today, March 22, 2013, Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) announced a new employee travel policy, modified its qualifications for sinkhole insurance, approved rate increases for commercial coverage, agreed to buy reinsurance for the Florida Hurricane Catastrophe Fund (“FHCF”) and addressed numerous other substantive measures.

To view the meeting materials, click here.

 

FMAP

Prior to the start of the Board meeting, the Florida Market Assistance Plan (“FMAP”) Board of Governors convened briefly in order to authorize the FMAP financial statements, budget and annual report for submission to Citizens Board for approval.  Once approved, Citizens’ Staff will file the annual report with the Florida Office of Insurance Regulation (“OIR”). 

To view the FMAP meeting materials, click here.

Funded by Citizens, along with a $450 annual assessment of residential property insurers, FMAP collected $259,000 from assessments in 2011 and incurred expenditures of $260,887, it was noted.

Citizens Chief Financial Officer Sharon Binnun described FMAP as a “very small keep-out program.” 

The meeting adjourned after it was agreed to submit the FMAP reports for Board approval.

 

Travel Policy

During a review of Citizens’ recently revised travel policy, Citizens President and CEO Barry Gilway noted that lower per-diem rates for employees and managers would not apply to Citizens’ Board members, since they are not otherwise paid for their service.

Under the new policy, overnight travelers can receive a maximum per-diem for meals and lodging of $80 combined, with a maximum $36 daily meal stipend.  Mileage will be reimbursed at a rate of .445 cents per mile.  To view complete details of Citizens’ revised travel policy, click here.

Under the leaner meal reimbursement rates, an employee can only spend $6 for breakfast, $11 for lunch and $19 for dinner.

When questioned about the adequacy of the $6 per-diem for breakfast, Mr. Gilway conceded that the sum was likely too low, but is what is allowed for all state employees.  A recently released report from Florida’s Inspector General recommended that Citizens move toward paying its employees at the same per-diem rate as other state employees.

“I don’t believe $36 is probably an appropriate per-diem.  The reality is the $36-a-day standard is the standard in place for all state employees,” Mr. Gilway said.  “Given the intense pressure and scrutiny that Citizens is under, and the Inspector General also recommended we move toward the state standards . . . I came to the decision to move to this standard.”

Mr. Gilway said the negative news accounts of Citizens’ spending shaped his decision to utilize the state standards.

“We need to get past the allegation that Citizens spends inappropriately and, second, that the climate within Citizens is an inappropriate climate,” Mr. Gilway stated.  “I believe we are putting those two issues behind us.  I think we have to do that in order to focus on the enormous amount of opportunities we have.”

Board member John Rollins agreed that public pressure cannot steer the way Citizens is run.

“We should not allow the peanut gallery to run this company,” Mr. Rollins said.

In light of the several recent negative news accounts about over-the-top spending by Citizens’ staff,  Mr. Gilway had imposed restrictions on travel last year, setting the daily meal allowance at $60 and hotel stays at $150-a-night. 

 

Chief Financial Officer’s Report

Citizens’ Chief Financial Officer Sharon Binnun told the Board that depopulation efforts and groundbreaking risk transfer agreements will reduce potential emergency assessments for all Floridians by more than $3 billion for the 2013 hurricane season–a 42 percent reduction in risk from 2012.

She said Citizens’ use of traditional reinsurers and capital market investors has enhanced the benefits gained by the company’s 2012 depopulation successes, and noted that Citizens returned 277,000 policies to the private market in 2012, yielding an $80 billion reduction in exposure.

Citizens’ total risk transfer for the 2013 Hurricane Season will exceed $1.75 billion, with $250 million of that sum to be invested in capital market transfers in 2013.

She said that, in 2012, Citizens executed a $750 million multi-year, collateralized reinsurance placement in the capital markets with Everglades Re that provided coverage of catastrophic risk for both residential and commercial losses.  She explained that the placement provided an overall reduction in the pricing of Citizens’ 2012 reinsurance program and enabled the State-run insurer to expand the diversity of reinsurance sources and reach new market participants.

She added that the additional coverage through Everglades Re for 2013 includes terms and conditions similar to those of 2012.

After hearing Ms. Binnun’s report, the Board voted to enter into a three-year, fully collateralized reinsurance contract with Everglades Re for $250 million of risk transfer in Citizens’ Coastal Account.

 

Clearinghouse

During discussions about the proposed statewide homeowners insurance clearinghouse, Citizens Chief Insurance Officer Yong Gilroy said it is possible that 60 percent of the nearly 40,000 new business applications Citizens received in 2012 could possibly be transferred to the private market through use of a clearinghouse.

The proposed clearinghouse would serve as a sort of virtual marketplace where Citizens policyholders could shop for insurance from private insurers.  When a policyholder goes to an agent, his or her coverage details would be logged into the clearinghouse and those details would be made available to other insurers.

Currently, about 53 percent of Citizens’ applications for new business are from captive agents and 47 percent are from independent agents, Mr. Gilroy explained.

He said the clearinghouse concept is an important one, because the business that currently exists at Citizens has not been “shopped.”

“Our goal is to make sure all applicants have access to every possible private insurance option before choosing Citizens,” Mr. Gilway noted.  “This is a mechanism to make sure the business in Citizens has the benefit of being presented to a much larger marketplace.  That is a huge benefit to the insureds.  It presents them with the most competitive marketplace.  To me, this is a huge benefit to the Citizens policyholder.”

Currently there is legislation in both the Florida Senate and House of Representatives that would give authority for the creation of such a clearinghouse, Mr. Gilway noted.

 

2013 Rate Increases for Commercial Residential Multi-Peril and Wind-Only Policies

After brief discussion, the Board unanimously approved overall average rate increases of 8.6 percent and 3 percent for Citizens’ Commercial Residential Multi-Peril (“CRM”) policies and Commercial Residential Wind-Only (“CRW”) policies, respectively.

The effective dates for the new rates would be June 1, 2013 for new business and July 1, 2013 for renewal business for both CRM and CRW policies.

These increases are for policies covering commercial residential properties where the individual structure value is $10 million or more.  These Advisory, or “A-rated” risks are not subject to the 10 percent statutory rate cap, nor are they subject to approval by the Florida Office of Insurance Regulation (“OIR”), although all proposed increases will be capped at a maximum of 10 percent, no matter what the indicated rate.   A territory-by-territory review of the proposed rate indications showed some in Miami-Dade County as high as 31.9 percent.

Those areas with indications higher than 10 percent will only incur 10 percent rate increases.

To come up with the indications, Citizens’ actuaries evaluated modeled catastrophe losses using the Atlantic Tropical Cyclone Model V12.0.1 Program: CLASIC/2 V12.0, and RMS v 11 SP2, as well as other provisions relating to the net cost of private reinsurance.   A separate risk load/cost of capital provision was included for layers up to 1-in-100 year probable maximum loss that Citizens retains.  It was further noted that:

• Most territories in Florida have indications close to zero
• 30 of 42 territories have indications falling into the -3 percent to 3 percent range
• All indications are capped between zero and 10 percent

 

Builders’ Risk

Although Builders’ Risk insurance was eliminated last year from Citizens’ Personal and Commercial Lines in response to a request from the Florida Cabinet, the Board voted today to reinstate it with the following coverage limitations due to a lack of availability:

• New construction or existing dwellings that are under renovation
• Wind coverage for properties located in coastal territory
• Single-family dwellings that will be owner-occupied when completed
  • The maximum limit and completed value for Builders’ Risk (new construction) or Building Renovation coverage is $1,000,000. (first loss rating is not available).
  • The coverage amount must reflect 100 percent of the replacement cost for the completed structure.
  • Separate detached buildings or structures are not eligible.
  • All Builders’ Risk or Building Renovation policies will be issued only for a one-year term.
  • A declination notice (subject to statutory limitations) may be required to establish that the applicant was unable to obtain coverage.
  • A five percent Hurricane/Other Wind/Hail deductible will be required.

Builders’ Risk was reinstated due to a lack of wind coverage for properties under construction in Monroe County and other areas in South Florida.  Market research conducted by Citizens’ staff showed that insurers willing to write policies for wind coverage in those areas with completed values under $1 million were virtually unavailable.

Coverage will be written in the Commercial Non-Residential Wind program on a Consent-to-Rate basis, allowing Citizens to offer coverage at adequate rates.  Rate level will be based on the rates previously charged for Builders’ Risk, adjusted to include an appropriate annual increase.

A separate Consent-to-Rate application submission process will be established.

 

Short-Term Rentals

How to handle the controversial subject of insuring short-term rentals was once again the subject of much discussion, with the Board unanimously voting to approve a clarification of the definition of “short-term rental.”   The clarification was made based on the Florida Public Lodging definition of the term (Section 509.013, Florida Statutes) and as outlined in Citizens’ current definition of “Commercial Lines Transient Occupancy.”

It was noted that the Staff recommendation specified that Citizens would not apply the clarification to existing business.  Due to current system and resource constraints, it was not thought to be feasible to identify or re-underwrite these policies.

The Board also voted to authorize Citizens’ Staff to develop a Wind-Only policy for short-term rental policies, but not without some Board members’ opposition.

Mr. Rollins and Tom Lynch both opposed the issue, voicing concern about Citizens taking on more risk that is not reimbursable by the Florida Hurricane Catastrophe Fund (“FHCF”).

Mr. Rollins said he opposed the move, because Citizens would be expanding coverage to a business on the beach at an inadequate rate, for example.

“I don’t support us to falling victim to that Citizens paradox once again, I don’t support it at an inadequate rate and I don’t support it without data to back it up,” Mr. Rollins said.

Board member John Wortman said offering the wind-only insurance coverage was exactly what Citizens mission is about:  providing insurance in instances where nothing else is available,

“There is nobody in the marketplace that is writing a wind-only personal lines produce for transient rentals,” said Brian Squire, chairman of Citizens’ Market Accountability Advisory Committee.

“There is not a market,” Mr. Squire said.

In other business, the Board took the following action:

Sinkhole Rules Revised

Reversing its position to never offer insurance to a property that had sinkhole damage, the Board unanimously voted to approve amended Personal Risk Management rules as they relate to sinkholes, so they more appropriately provide specific coverage for properties that have suffered a total limits or partial sinkhole loss.

“What we are trying to establish a logical way to provide coverage to those owners who had sinkholes in the past,” Mr. Gilroy explained.

Details include the following:

• If a property has been remediated in accordance with engineering recommendations upon which a partial or total payment was based and full documentation is provided, the property would be eligible for an Open Peril HO-3 or DP-3 policy.
• If a property has not been remediated in accordance with original engineering recommendations, the property is only eligible for a Named Peril DP-1 (or an HO-8 policy) subject to the shared-cost inspection process whether Sinkhole Loss Coverage is requested or not. The applicant must also provide a Four-Point Inspection for the home. (These reports will ensure that all cosmetic damages have been repaired, there are no unusual hazards or existing damage remaining and all of the home’s systems are in good working condition).
• Applications on any property that has previously suffered a sinkhole claim/loss must be submitted to Citizens Underwriting unbound at least 30 days in advance to allow underwriting sufficient time to review all documentation of remediation.

At the request of Board Chairman Carlos Lacasa, a fourth option was deleted that said underwriting rules should differentiate between the original owner who filed the sinkhole claim and determined how the claims proceeds were spent, and the new owner of the property.

 

Risk Transfer Programs

After some discussion, the Board voted to purchase the Mandatory Layer FHCF coverage, but not to purchase the FHCF’s Temporary Increase in Coverage Limit (“TICL”).

Citizens’ Staff was also authorized to take any necessary action to work with reinsurance co-brokers to place Citizens’ reinsurance program at a cost not to exceed $115 million, which could include increasing the amount of exposure transferred without exceeding this amount.

The decision to purchase catastrophe reinsurance is made annually, Ms. Binnun explained.  Risk is transferred through the use of catastrophe insurance as a way to reduce the amount and/or likelihood of assessments after a storm, she noted, adding that the FHCF provides coverage for personal residential and commercial residential losses only.  Unlike private reinsurance, the FHCF is a reimbursement mechanism, meaning Citizens must first pay the underlying claims before a reimbursement from the FHCF is received.

 

Mobile Home Additional Structures Buy-Back Proposed

After brief discussion, the Board unanimously voted to reinstate Citizens’ coverage for mobile home screened enclosures and attached carports under a buy-back proposal.   The measure, which includes a 16 percent surcharge for coverage for carports and screened enclosures, was approved with a caveat, however–that the insurance offered would not be subject to the existing 10 percent statutory glide path.

Citizens had eliminated coverage for screened enclosures and carports for mobile homes last year, citing their high risk.

Mr. Lynch said he doesn’t believe the 10 percent glide path should apply, because coverage is being added.  He proposed an amendment that this coverage not be subject to the glide path.  However, it was noted that the OIR might reject the proposal if it is not subject to the glide path.

The “buy-back” endorsement would include:

• Coverage for screened enclosures and carports attached to mobile homes
• Offers per $100 of coverage up to a limit of $10,000
• Actual Cash Value coverage
• Application of the policy deductible

Premiums would be adjusted to reflect the vulnerability of the structures.  Structures with aluminum frames, awnings, screens or thatched roofs such as those on tiki huts would not be covered.

At its December 2012 meeting, the Board considered a request from representatives of the mobile home community to provide coverage for screened enclosures and carports. 

Mr. Rollins voted for the measure, but said he was torn.

“It does not take a Category 4 hurricane to blow away a carport attached to a mobile home,” he said.

 

Shutters

The Board unanimously voted to approve clarification of language related to the application of Citizens’ shutter deployment incentive.

 

CORE

The Board approved an array of “CORE” product changes, including general updates, reformatting and reorganizing of manuals, and form revisions, with several amendments. There will be no rate impact from any of the proposed changes.

The Board also approved several other procurement items before adjourning.

 

 

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