Citizens Mission Review Task Force Meeting Report: December 10

Dec 11, 2008

On Wednesday, December 10, 2008, the Citizens Mission Review Task Force (“Task Force”) met in Jacksonville, Florida.  Chairman Bruce Douglas opened the meeting after recognizing the attendance of State Representative Alan Hayes (R-Umatilla).  After approving the November 20, 2008 meeting minutes, the Task Force moved immediately into hearing public testimony.  To view the complete meeting agenda, click here.

Public Testimony

A representative from Executive Insurance Partners (“EIP”) provided testimony centered around a competitive analysis for homeowners insurance rates in Florida.  Noting that Citizens Property Insurance Corporation (“Citizens”) rates are higher in some areas and lower in others, he indicated that a Citizens rate change could have a significant impact on the private sector. 

The EIP representative said that the effect of rate changes for older homes and new homes should be considered, and that actuarially-sound rates for Citizens may or may not have a negative impact on the private sector. 

Chairman Douglas stated that he expects 2009 premiums will be less than 2008 even though exposure could increase in 2008. 

Although the Task Force discussed whether any future Citizens rate increases should be recommended, it did not reach a consensus on the issue of proper rates.  Florida Office of Insurance Regulation Deputy Commissioner Belinda Miller noted that policymakers could weigh the option of having rates below the actuarially-indicated level, with the understanding that there may be exposure to post-event assessments.

A representative from State Farm Insurance Company provided testimony in response to the comments and concerns from Task Force Members about multi-line discounts.  He remarked that State Farm agents are not being advised by State Farm to market to Citizens and that the purpose for the legislative change was so that State Farm automobile customers would not lose their automobile discount if they are non-renewed by State Farm or taken-out by other companies. 

Ms. Miller noted that the purpose of disallowing discounts on automobile policies was to discourage companies from getting out of the homeowner’s market.  Task Force members engaged in a heated discussion regarding the purpose and impact of this legislative change.  Ultimately, the Task Force members did not perceive legislative changes regarding the multi-line discount as an effective policy for achieving the goal of moving Citizens back to a residual market.

Representatives from The St. Petersburg Group (“SPG”) provided public comments regarding its plan for managing hurricane risk in Florida.  The company’s philosophy is that the private market cannot adequately handle hurricane risk.  Therefore, it supports a quasi public-private partnership to manage risk.  Chairman Douglas stated that SPG’s plan cannot be fully financed, and added that if a catastrophic event hits Florida, the federal government must provide assistance.  To view the written comments provided by SPG, click here.

A representative from Associated Industries of Florida provided testimony addressing concerns with post-event assessments.  He suggested that the Task Force consider recommendations to 1) remove the Citizens rate freeze and phase in rate increases, 2) repeal the provision requiring Citizens to purchase the Temporary Increase in Coverage Limits (“TICL”) layer, 3) encourage Citizens to purchase private reinsurance, 4) prohibit Citizens from writing commercial policies and 5) enhance incentives for mitigation practices.  The Task Force Members and representatives from Citizens took exception to an accusation that Citizens engaged in pursuing legislation requiring it to write commercial lines of business.  It was agreed upon during this discussion that Citizens should not be writing commercial policies and also noted that Citizens is not required to purchase TICL coverage. 

Chairman Douglas reviewed the Florida Hurricane Catastrophe Fund (“FHCF”) and Citizens as separate entities from the reinsurance perspective.  Citizens’ premiums would be politically unacceptable if it is required to purchase reinsurance from outside the FHCF.  The Task Force members noted that Citizens secures most of its obligations from pre-event financing rather than post-event.  However, a catastrophic event would likely trigger post-event financing due to the troubled financial markets. 

To view a report entitled, “Weathering the Next Storm:  Insurance Industry Perspectives on Florida Law” provided by Towers Perrin, click here.

A letter to Florida Insurance Commissioner Kevin McCarty from Florida Chief Financial Officer Alex Sink asking that a report on the financial soundness of new Florida insurers be given at the January, 2009 Florida Financial Services Commission meeting is attached for your review.

Staff Presentations

Continuing a presentation that began at the previous Task Force meeting, Citizens Senior Vice President of Underwriting Paul Palumbo reviewed Citizens’ exposures, statutory service requirements, and Citizens’ policy characteristics.  A discussion ensued regarding wind mitigation and home-hardening, which is acknowledged to reduce average annual and maximum loss, but not exposure.  To view the presentation, click here.

Citizens Executive Vice President of Corporate Operations Susanne Murphy discussed the geographic boundaries of Citizens’ high-risk accounts.  Ms. Murphy estimated that the gross direct premium written for Citizens in 2008 is $4.5 billion, and for 2009 it is $2.6 billion ($1.7 billion in premium earned).  She projected that the non-catastrophic losses are $0.5 billion and that the total underwriting expenses are approximately $1 billion-costs that do not leave adequate funding to cover catastrophe losses on an average yearly basis.  To view the presentation, click here.

The Task Force members discussed a proposed policy that no new construction within 2,500 feet of the coastline be insured by Citizens.  It also was suggested that Citizens insure no new construction in Florida. 

The Task Force discussed the following proposed statutory recommended changes:

  • Repeal of the 15 percent eligibility rule
  • Repeal the “affordability” language in the Citizens statute that hinders the “market of last resort” goal
  • Repeal statutory language which permits insureds to decline takeout offers
  • Repeal the Consumer Choice statute
  • Permit Citizens to achieve actuarially sound rates over a specified number of years

The Chairman recommended that Task Force members review and comment on the recommendations listed on pages 7-12 of the draft report.  To view these comments, click here.

The next Task Force meeting is scheduled for January 6, 2008 at 8:00 a.m. in Tampa, Florida at the Tampa Airport Marriott.


Should you have any questions or comments, please do not hesitate to contact Colodny Fass.


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