Citizens Board of Governors July 8 Meeting Report
Jul 13, 2009
The Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) met on July 8, 2009. To view the complete meeting agenda, click here.
Finance and Investment Committee
The Board approved the tax-exempt pre-event bond proceeds investment policy recommended by the Finance and Investment Committee. To view the May 2009 Citizens Investment Report, click here.
A six-month emergency procurement contract with Clearwater Analytics for monitoring investment compliance and performance also was approved. Since 2007, Citizens has been utilizing a system called Investment Monitor to perform these functions, but as Citizens continues to tighten its investment policies and new types of investments such as FDIC-insured notes are introduced to the market, this system is no longer adequate. Additionally, it was explained that since Citizens recently contracted with five new investment managers, it is understaffed to ensure compliance with the Investment Monitor system. The purchase was accorded emergency status because of the potential detriment to Citizens should an interruption of these services occur.
Citizens’ President Scott Wallace gave his July President’s Report, which detailed Citizens’ Claims and Operations Key Performance Indicators (“KPI”).
Citizens’ mail and call centers were both performing at, or above, their service goals for the first quarter of 2009, although a slight increase in the time to answer calls was reported due to increased call volume from State Farm policyholders subsequent to Florida Governor Charlie Crist’s veto of House Bill 1171.
Personal lines underwriting has increased as a result of Citizens’ Wind-Only Personal Residential policies being re-written for the Single Personal Lines (“SPL”) project, which will replace the outdated wind-only policy form with industry-standard Insurance Services Office, Inc. (“ISO”) forms and move the writing of these policies to the same system used for other policy types. This has caused a delay in the average time to process a new policy, which is expected to be temporary.
Board member Allan Katz suggested that Citizens may need to hire additional underwriting staff to minimize this delay.
Regarding the Governor’s veto of HB 1171, Mr. Wallace said that it is still too early to tell how it will impact Florida’s property insurance market. Citizens’ Staff will continue to monitor the situation and communicate as needed with the Florida Office of Insurance Regulation (“OIR”).
At the end of 2008, State Farm had 850,000 homeowners’ insurance policies, the majority of which were personal residential. Most of State Farm’s policies in high-risk areas exclude wind coverage (“ex-wind”). Citizens writes wind-only policies for many of State Farm’s ex-wind customers.
Mr. Katz asked whether Citizens’ book of business would improve if it was able to write the ex-wind portion of the State Farm policies for which it currently writes wind-only coverage. Mr. Wallace indicated that Citizens’ book of business would improve “on paper,” because the policy count and probable maximum loss would remain the same, while the premium dollars would increase.
Board member Tom Lynch inquired about the amount of reinsurance State Farm buys from the Florida Hurricane Catastrophe Fund (“FHCF”). Florida Deputy Insurance Commissioner Belinda Miller stated that State Farm purchases the mandatory layer coverage, which represents a significant portion (approximately 20 percent) of the FHCF’s available reinsurance. Ms. Miller assured the Board that it is not acceptable to the OIR for all of State Farm’s policies to be “pushed” into Citizens, and that the OIR will not allow only the ex-wind policies to be placed into the private insurance market.
Ms. Binnun added that, in 2008, State Farm held 9,400 high-risk wind policies.
Ms. Binnun reported on Citizens’ financial statements and related analysis for the first quarter of 2009, as well as the independent auditor report.
According to Ms. Binnun, in the first quarter of 2009, Citizens’ budget was “on track” and its claims-paying ability was in the “best shape, ever,” with just over $16 billion available to pay claims and an additional $1 billion in unearned premiums.
Supplemental materials provided by Ms. Binnun as part of her CFO Report included:
- Financial statements for the year ended March 31, 2009
- Management discussion and analysis for the quarter ended March 31, 2009
- 2008 statutory basis and supplemental schedule financial statement
- 2008 generally accepted accounting standard (“GAAP”) financial statement
- 2008-2009 premium comparison charts
- The following letters and reports from Citizens’ independent auditor:
Actuarial and Underwriting Committee
30-day waiting period for commercial multi-peril policies approved
The Board approved the implementation of a 30-day waiting period for all Commercial Residential and Non-Residential Multi-Peril policies, as well as Commercial Residential and Non-Residential Wind policies. The new Rule will impose a 30-day waiting period before coverage can take effect for applicants that have been uninsured for 45 days or more prior to application. The same waiting period will be applied to applicants who cannot provide proof of prior coverage. The intent of this Rule, which is consistent with the current 30-day waiting period on personal lines policies, is to deter applicants without prior insurance from obtaining coverage in anticipation of a specified wind event.
The 30-day waiting period is not intended for applicants seeking coverage for a new purchase, applicants who have been recently non-renewed by another carrier, or any applicant who has otherwise maintained coverage immediately prior to seeking coverage from Citizens.
Appraisal Requirements Tightened
The Board approved revising the appraisal requirement for both commercial wind and commercial residential multi-peril risks from 18 months to 12 months.
Citizens currently requires submission of an appraisal not older than 18 months for each separately-scheduled building to be insured, with an application for new business or any endorsement request to add a new building to an existing policy. Appraisals are used to confirm the replacement value of a building and verify it is insured to value at policy inception.
Citizens automatically increases the building limit at renewal according to the Marshall-Swift Boeckh Cost of Construction Index in order to ensure that the building coverage keeps pace with inflation.
Accepting appraisals up to 18 months old may allow a policyholder to avoid the increase at the first renewal, since the appraisal submitted at the time of application may still be within 18 months old. Tightening the appraisal requirement to 12 months will avoid this issue and allow the automatic increase in limits to be applied consistently to all risks at renewal.
Plumbing and Roof Age Rules Approved
In an effort to reduce Citizens’ exposure to losses, the Board approved two new eligibility criteria in the Personal Residential Multi-Peril programs:
With water losses being a major driver of Citizens’ non-catastrophe loss ratio, the introduction of a new plumbing category to the list of ineligible properties will enable Citizens to decline, cancel, or non-renew risks with plumbing concerns. The specific Ineligible Property Rule that will apply to all new and renewal business is:
Ineligible: Properties which (sic) contain plumbing that is not in good condition, has visible leaks, or has interior supply lines that are not copper or PVC.
In addition, plumbing requirements will be added to the current set of conditions that must be met in order for a property over 50 years old to be eligible for coverage with Citizens. Documentation noting that the plumbing is in good condition and has been updated in the last 35 years will be required and reviewed by underwriting.
- Age of Roof
As previously approved by the Board of Governors, Citizens recently introduced Age of Roof Rules in the Personal Residential Wind-Only programs. These Rules specify that, to be eligible for a wind-only policy, roofs must not be damaged, or have visible signs of leaks, and they must have at least three years of remaining useful life. In addition, the Rules require that roofs be updated when their age exceeds 25 or 50 years old, depending on the type of roof cover. The change is targeted to be implemented in March 2010.
Citizens’ Senior Vice President of Underwriting Paul Palumbo, who reported on Actuarial and Underwriting Committee meetings that had taken place since the April 3, 2009 Board meeting, reviewed the June 2 Legislative Report on statutory provisions in HB 1495 that will affect Citizens’ products. Those include:
- Any increase in rates that will go into effect as result of Citizens’ 2010 rate filings will be capped at 10 percent per policy;
- Citizens may increase premiums in addition to the rate cap to account for the amount paid to the FHCF for its cash build-up factor;
- Insurers are now permitted to add language to homeowners’ insurance forms relating to the company’s option to repair damaged property; and
- An expanded list of qualified mitigation inspectors.
The Board approved modifying Citizens’ products in accordance with the provisions of HB 1495 with no discussion. To view a summary of legislative changes that will affect Citizens, click here.
Non-Catastrophe Loss Working Group
At its June 2 meeting, the Actuarial and Underwriting Committee directed the Non-Catastrophe Loss Working Group to perform some analysis on the possibility for a special “water loss” deductible and what type of impact that may have on Citizens’ loss results. Updates to the initial water analysis and loss control activities will be provided at the next Board of Governors meeting, along with a preliminary analysis of non-catastrophe fire losses.
Working Group project updates include:
- Citizens’ employees are currently handling Severity 4 and 5 claims and additional positions have been created and posted to increase capacity.
- An informative brochure with consumer information on simple and inexpensive loss control activities is under development, with the goal of posting to the Citizens Web site in the third quarter of 2009.
- The project to introduce a flooring sub-limit is scheduled to begin after the 2010 filings have been completed.
- The first run of analysis using Citizens’ mapping capabilities to identify unusual clusters or “hotspots” of claim activity on water is complete and was included in the April 3rd report and an initial run for fire claims is underway.
- The Special Investigative Unit continues to identify common elements among water claims that are being used as the basis of “red flags” indicating possible fraud to adjusters. The same process is being applied to fire claims.
- The proposal to enhance the current inspection program is in the final stages of development.
- The Claims department is working with Legal to finalize a contract with ISO ClaimSearch®, which provides industry-wide information on previously reported claims and will enable Citizens to resist paying for old damage and duplicate claims.
- The Request for Proposal (“RFP”) due diligence for implementing an “early response” program for water claims is scheduled to begin in the fourth quarter of 2009.
Commission Structure Annual Review Approved
A recently completed Citizens internal audit revealed the need for a periodic review and ratification of agent commissions by Citizens’ Board. Thus, the Board approved a resulting recommendation by Citizens’ Office of the Internal Auditor to perform the review at least annually, beginning June 26, 2009.
Citizens’ current commission schedule that includes the stated and effective percentages paid for each policy type can be viewed by clicking here.
Ten Percent Rate Increase/Decrease Cap Approved
During the June 2 Committee meeting, the HB 1495 mandate to file actuarially-sound rate filings for all lines of business (excluding Commercial Non-Residential Multi-Peril) by July 15, 2009 was debated at length.
After having requested legal opinions on the legal compliance of substitute and alternate recommendations proposed at previous meetings, the Board finally arrived at a consensus at its July 8 meeting to approve the original recommendation to file its 2010 rates based upon the Florida Public Hurricane Loss Projection Model for personal residential policies, the RMS model for commercial policies, and include a 10 percent policyholder level cap on rate increases and decreases, excluding coverage changes and surcharges.
The rate filing recommendation was developed using the following information:
- Estimates of Citizens’ operating expenses;
- Non-catastrophic loss projections based upon five years of loss history;
- Wind loss projections based upon modeled results using the approved version of the RMS model for commercial policies and the Florida Public Hurricane Loss Projection Model for personal residential policies; and
- The net cost of reinsurance for both the mandatory and Temporary Increase in Coverage Limits (“TICL”) layers of FHCF coverage.
Citizens’ Senior Vice President of Claims Yong Gilroy updated the Board on Claims projects, including:
- 2009 Catastrophe Plan (“CAT Plan”) Overview
CAT Plan claims handling process data will be accessible and provide reporting capabilities at the individual Independent Adjuster (“IA”) level as well as the IA Firm level. The Citizens adjusters also will continue to conduct quality reviews on all claims exceeding the authority level of the IAs. The remaining quality reviews will be conducted, or overseen, by the Citizens Quality Assurance Team. They will conduct, or oversee, a program for reinspections of submitted field claims, as well as conduct closed file reviews from Inside and Field IAs. Similar data will be available for these reviews with the goal to have Citizens employees oversee the IA’s work product. The CAT Plan model allows for the expansion of Citizens teams to oversee groups of IAs. If the event is large enough to call for additional Citizens support, the Non-CAT Operations (i.e., Daily Claims) will supply the additional oversight.
In May 2009, all of the CAT IA Firms were trained on the 2009 CAT Plan, including the Task Assignment and the Managed Claims Model (full assignment). The Task Assignment Model requires the IA to perform a brief investigation of the claim, a scope and estimate of the damages and a closing report that is submitted to Citizens to complete the claim. The Managed Claims Model transfers all of the claim responsibilities to the IA to complete the claim and submit the payment request to Citizens.
- Chinese Drywall
Citizens has received approximately 10 claims for alleged damage due to Chinese drywall installation. These claims are being investigated.
To view a summary of Claims project updates, click here.
Market Accountability Advisory Committee
Committee Chairman Brian Squire reported on issues to be monitored by the Market Accountability Advisory Committee during its new term, including:
- Transient properties
- Vacant properties
- Citizens’ financial reporting
- Wind mitigation credits
- Consumer services
- Agent services
Citizens’ Executive Vice President of Corporate Operations Susanne Murphy presented the Board’s Consent Agenda, which included contracts for the following:
- Special investigation services
- Professional recruiting services
- Security guard services
- Outside legal counsel for subrogation and recovery
- Emergency procurement for investment compliance and performance services
- Mail solutions
- Xactware Solutions contract extension
- Marshall and Swift/Boeckh contract renewal
The Board unanimously approved the Consent Agenda.
Citizens’ General Counsel announced that he will retire from Citizens effective September 15, 2009.
The next Board meeting will be held on Thursday, August 27, and Friday, August 28, at the Tampa Airport Marriott.
The meeting was then adjourned.
Should you have any questions or comments, please contact Colodny Fass.
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