Citizens Actuarial and Underwriting Committee Meeting Report: November 17
Nov 18, 2008
Citizens Property Insurance Corporation (“Citizens”) Actuarial and Underwriting Committee (“Committee”) held a meeting on November 17, 2008.
The Committee reviewed the following actuarial and underwriting updates:
2009 Changes in Eligibility for Personal Residential Coverage
Beginning January 1, 2009, two new statutory limitations on eligibility for personal residential coverage with Citizens will be effected. The changes will impact new customers as of January 1st and existing policyholders with renewal dates on, or after July 1st. Agents and policyholders have been made aware of the upcoming changes and their impact.
With extensive discussion on the 180-day non-renewal notice issue, the Committee reviewed the new eligibility requirements:
New Maximum Replacement Cost Value
Personal residential structures with a replacement cost of $2 million or more or a single condominium-unit with a combined dwelling and contents replacement cost of $2 million or more, are no longer eligible for coverage with Citizens. On January 1, 2009, risks exceeding this maximum limit are not eligible for a new business policy. Such properties already insured by Citizens for $2 million or more will become ineligible at the end of the current policy term and be non-renewed in accordance with the 180-day notice requirement.
However, the statute provides an exception for existing policyholders, who are eligible to maintain coverage for up to three years by providing a sworn affidavit from one or more insurance agents stating that a “best effort” was made to place coverage with another carrier, but was declined by one authorized insurer and three surplus lines insurers.
The non-renewal notice will instruct existing policyholders to contact their agent to inquire about qualifying for continued coverage. The affidavit that will be used by agents to qualify their clients for the coverage extension was filed with the Florida Office of Insurance Regulation and approved in October, 2008. To view the affidavit, click here.
This requirement impacts approximately 1,300 risks that are located in wind-only eligible areas where there is currently no maximum coverage limit. The maximum coverage limit for structures located outside of the wind-only eligible areas remains at $1 million for residential structures and $400,000 for condominiums.
To view the Wind-Borne Debris Map (as amended by House Bill 1A in 2007), click here.
Opening Protection Requirements in the Wind-Borne Debris Region
Personal residential structures valued at $750,000 and above that are located in the Wind-Borne Debris Region must meet compliance requirements on opening protections as required under the Florida Building Code for a newly-constructed residential structures in that area.
Citizens has given appropriate consideration to the time element and out-of-pocket expenses associated with complying with this new requirement. Existing policyholders with no opening protections noted on the policy were identified and sent a postcard in August, 2008 informing them of the new requirement that will impact them beginning in July 2009. Approximately 8,000 policyholders received the postcard and agency principals also were provided a list of their clients that are impacted by the new opening protection requirement. To view the postcard, click here.
Citizens’ Rating Methodology Plans for 2010
Because Citizens’ rates remain frozen at December, 2006 levels as mandated during the 2008 Legislative Session, the Committee expressed concern about the timing of rate filings in 2009 and 2010.
Upon termination of the rate freeze, Citizens will revise its current rating methodology for the following reasons:
- Current rating methodology is based on an “additive” structure, which begins with a certain base premium and then adds credits/debits to this base to arrive at the final premium. This approach can lead to unreasonable results. For example, the application of windstorm mitigation credits has led to a negative final premium in certain instances. Thus, the OIR has approved Citizens’ implementation of a “cap” on credits when the windstorm mitigation credits were increased earlier this year.
- The credits/debits used in the calculation have been determined based on a univariate analysis of data. This has resulted in the double counting of certain discounts/credits such as windstorm mitigation and age of a home.
- One indivisible base rate is used to rate for many perils, which sometimes may vary dependent upon the rating factors. Applying different rating factors to different perils produces more accurate rating.
Rating methodology revision progress to date includes:
- The new rating structure for Personal Residential Multi-Peril coverage is completed. A new rule/rate manual is in development.
- The new rating structure for Personal Residential-Wind Only and Commercial Residential-Wind-Only is near completion.
- Commercial Residential Multi-Peril data modeling is in process.
Other ongoing Citizens actuarial and underwriting projects include:
Agency Link, an upgrade of the Point system, will allow Citizens’ commercial agents to quote and enter new business applications and view existing commercial multi-peril policies through a web-based platform. Commercial Underwriting, Agent Services and IT are in the process of developing system requirements and the product is expected to be available in late Spring, 2009. The initial release will include commercial residential multi-peril policies. Commercial non-residential policies will be added a few months later. The upgrade is expected to improve efficiency by eliminating the need for policy entry by staff.
The Citizens’ Commercial Nonresidential Multi-Peril policy was launched on November 3, 2008. To provide for a smooth transition between Phase II and Phase III of the launch, as well as honor outstanding Phase II quotes, ICAT, Citizens’ policy administrator, ceased quoting on November 3 and Citizens began quoting and accepting applications the same date for new business to be effective November 17.
ICAT’s authority to issue new business on behalf of Citizens ended on a specific date. ICAT will continue to service the existing wind-only policies for a one year run-off period.
Initial interest in the new product has been low. In the first three days of release, Citizens’ Underwriting received only 36 phone calls and no quote requests, with most phone calls being related to appointment requirements and eligible occupancies.
Regional Underwriting was officially launched to the entire agency force in July, 2008 following the completion of a successful, well-received pilot program. Currently, both Personal and Commercial Lines Underwriting receive approximately 40,000 calls per month from its agency force.
Fine tuning of the operating system has included:
- Modifying the system so as to retain a higher percentage of agency calls within the appropriate regional team
- Improving communications to the agents and routing within the system to ensure more accurate routing between the Technical Resource Center and Underwriting
- Improving the message quality and reducing the length of the message
The Automated Underwriting program for personal lines is designed to approve rudimentary applications that are relatively free of negative underwriting information without handling by an individual underwriter. This process is expected to enable Citizens’ underwriting staff to spend time working on applications for more complex coverage.
An analysis of new business patterns for several months in 2008 indicates that approximately 30 percent of multi-peril new policy applications will be approved through this automated process.
An automated pilot program for approximately 20 large agencies begins November 17th, with plans to expand the program to the entire agency force within 60-90 days. Internal and external communications have been developed and distributed to the agency force as well as Citizens’ employees to familiarize them with this new process.
Development of an automated underwriting tool for Citizens’ wind-only applications also is currently underway. A similar introduction has been designed for the multi-peril product line.
The next Committee meeting was scheduled for January 23, 2009.
The meeting was then adjourned.
Should you have any questions or comments, please do not hesitate to contact Colodny Fass.
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