Citizens Actuarial and Underwriting Committee Meeting Report: June 2

Jun 4, 2009

Citizens Property Insurance Corporation (“Citizens”) Actuarial and Underwriting Committee (“Committee”) met on Tuesday, June 2, 2009.  To view the complete meeting agenda, click here.

Committee Chairman Earl Horton called the meeting to order, with Committee members Tom Lynch, Amy Padgett, Fred Strauss and Jeff Kucera in attendance. 


2009 Legislative Report

Citizens’ Director of Communication and Legislative Affairs Christine Turner reported on the outcome of Florida’s 2009 Regular Legislative Session, which concluded on May 8, following a one-week extension in order to pass the State budget for the 2009-2010 fiscal year. 

House Bill 1495, signed into law by Florida Governor Charlie Crist during late May, proved to be the bill with the most impact upon Citizens passed this year.  Among other provisions, the bill establishes a “glide-path” rate increase capped at 10 percent per policyholder, per year, as well as changes to both the mandatory and Temporary Increase in Coverage Limits layers of the Florida Hurricane Catastrophe Fund (“FHCF”). 

Governor Crist vetoed Senate Bill 714 relating to Condominiums, because the bill would have required an installation date extension on fire sprinklers in condominium common areas. 

SB 742 relating to Sinkhole Losses was presented to Governor Crist on June 3.

A table detailing changes to Citizens as a result of property insurance legislation passed during the 2009 Regular Legislative Session may be viewed by clicking here

To view a summary of Ms. Turner’s report, click here


Legislative Impact on Citizens’ Products

Citizens’ Director of Actuarial Services Kimberly Abate gave an update on pending 2009 Regular Legislative Session compliance action items specific to Citizens.  The following changes to Citizens’ rates, homeowners policy forms and the uniform mitigation verification inspection form are in development:

  • A cap in premium increases to no greater than 10 percent per policyholder, per year;
  • Development of a pass-through for the Florida Hurricane Catastrophe Fund cash build-up factor;
  • Addition of text in homeowners policy forms related to an insurer’s right to repair damaged property; and
  • Expansion of the list of qualified inspectors on the uniform mitigation verification inspection form.

To view a summary table of changes being undertaken by Citizens’ Staff, click herePlease note that since SB 714 was vetoed by the Governor, the changes that would have been required by passage of the bill will not be undertaken.


2010 Rate Filings

Citizens’ Director of Underwriting Brian Donovan presented the 2010 rate analysis, which provides separate rate indications formulated using the Florida Public Hurricane Loss Model and a hurricane loss model from Risk Management Solutions, Inc. (“RMS”), because the Florida Public Model is not able to provide results for commercial lines policies. 

The estimated premium impact uses the Florida Public Model for personal residential policies and the RMS model for commercial policies.  It also includes a 10 percent per policyholder level cap on rate increases or decreases, and excludes coverage changes and surcharges.  To view a summary of initial rating recommendations proposed by Citizens’ Staff, click here.

To view summaries of the proposed indicated rate changes for Citizens’ policies, click on the hyperlinks below:

As a result of the 2010 rate analysis, Mr. Donovan requested that the Committee recommend the following average rate increases to the Board of Governors (“Board”) at its June meeting:

  • 4.8 percent for personal residential multi-peril policies;
  • 5.5 percent for personal-residential wind-only policies;
  • 9.4 percent for commercial residential multi-peril policies;
  • 8.2 percent for commercial residential wind-only policies; and
  • 9.4 percent for commercial non-residential wind-only policies.

If approved by the Committee, Board and Florida Office of Insurance Regulation (“OIR”), the overall estimated impact on Citizens’ premiums would be an increase of approximately 6.3 percent.  This total does not take into account the effect of legislative changes to the FHCF.

Discussion regarding the legislative intent behind the 10 percent rate cap provided in HB 1495 and the definition of actuarially-sound rates ensued.  Committee members expressed concern that enacting a 6.3 percent average rate increase would not be enough to make Citizens’ rates actuarially-sound and suggested that an across-the-board 10 percent rate increase should be enacted, except for those policies that have negative rate indications. 

After lengthy discussion, the Committee ultimately decided to recommend a rate increase of up to a 10 percent  for every policy, with a positive rate indication and no increase or decrease for policies with a negative rate indication.  After gathering additional information from the OIR and Citizens’ legal counsel on the legislative intent of HB 1495, the Committee will hold an additional conference call before the June Board meeting in order to refine its recommendation.


Non-Catastrophe Loss Working Group Update

The Non-Catastrophe Loss Working Group (“Working Group”) was formed by the Committee to review water and fire losses that have occurred for reasons other than a catastrophe.  

The Working Group had presented its initial analysis of non-catastrophe-related water losses and information about ongoing monitoring and loss control activities during the April 3, 2009 Board of Governors meeting.  To view a copy of the report, click here

Citizens’ Project Manager Jennifer Benton gave status updates on the following loss control activities:

  • Additional positions have been created to increase Citizens’ capacity to handle Severity-level Four and Five claims.
  • A brochure for consumers with information on simple and inexpensive loss control methods is being developed and is expected to be posted to Citizens’ Web site during the third quarter of 2009.
  • A project to introduce a flooring sub-limit for covered losses is scheduled to begin after Citizens’ 2010 rate filings have been completed.
  • The first analysis to identify unusual clusters of water claim activity is complete and was included in the April 3, 2009 report. An initial analysis of fire claims is currently underway.
  • Citizens’ Special Investigations Unit is working to identify common elements among water claims that may be used as a basis for “red flags” to indicate possible fraud to adjusters. The same process is being applied to fire claims.
  • A proposal to enhance Citizens’ inspection program is in the final stages of development.
  • Citizens’ Claims Department is working to finalize a contract with ISO ClaimSearch, which provides industry-wide information on previously-reported claims.
  • Due diligence is scheduled to begin in the fourth quarter of 2009 on the Request for Proposal for implementation of an “early response” program for water claims.

To view the Non-Catastrophe Working Group update, click here.

Mr. Lynch inquired whether the deductible for policyholders with multiple water losses can be increased, or if other measures may be taken to mitigate Citizens’ loss exposure.  Citizens’ Senior Vice President of Underwriting Paul Palumbo stated that the issue has been addressed with the OIR in the past, and increasing those policyholders’ deductibles would be considered providing inadequate coverage, which would require a further reduction in rates. 


Annual Review of Citizens’ Commission Structure

Mr. Palumbo presented results from a recent Office of the Internal Auditor (“OIA”) evaluation on the effectiveness, process and adequacy of Citizens’ agent commission rate and calculation controls.  To view a summary of the OIA findings, click here.

The overall audit results were satisfactory; however, two areas were identified that require attention.  The first issue was an error in the Commission Rate Schedule published on Citizens’ Web site, which has since been corrected.  The second issue was periodic review of agent commissions by the Board.  In its report, the OIA recommended that agent commission rates should be reviewed and ratified by the Board annually.  To view Citizens’ current commission schedule, click here.

The Committee approved recommending to the Board that Citizens’ current commission schedule be ratified and reviewed annually.


New Business

Ned Miller, a Citizens policyholder, addressed the Committee regarding a 60 percent insurance rate increase on his condominium building policy. 

Commercial residential buildings with a replacement cost of over $10 million require a special advisory rating.   The $10 million threshold for an advisory rating is arbitrary, and was approved by the OIR several years ago.  Mr. Miller requested that the Committee review the $10 million threshold and suggested that ratings should remain steady regardless of property value.

Committee members discussed Mr. Miller’s suggestion and agreed to review the rating threshold.

The meeting was then adjourned.


Should you have any questions or comments, please contact Colodny Fass.


To unsubscribe from this newsletter, please send an e-mail to