Citizens Property Insurance Actuarial and Underwriting Committee Addresses High Executive Turnover; Recommends 2013 Rate Increases for Certain Commercial Residential Policies and a Buy-Back Proposal for Additional Mobile Home Structures

Mar 7, 2013


A top Citizens Property Insurance Corporation (“Citizens”) executive blamed negative media coverage and constant scrutiny for the recent exodus of five top managers during Citizens Actuarial and Underwriting Committee (“Committee”) meeting on March 5, 2013.

“What I am most concerned about is what will happen if we were to have a CAT (catastrophe) and what impact that will have to Citizens and the rest of the state,” said Yong Gilroy, Citizens’ Chief Insurance Officer.

Mr. Gilroy acknowledged that the incentive packages found in the private market could be more alluring to employees, but said constant scrutiny, negative media coverage, and a lack of sponsorship has made hiring qualified replacements for the departed employees difficult.

Gone in the past four months are Debbie Murphy, former vice president of underwriting;  Eric Ordway, former vice president of insurance operations; Angie Quinn, former director of enterprise quality assurance and training; and David Boyle, former senior director of claims.  The last day for Sandy Geisler, underwriting consultant, is March 8, 2013.

John Rollins, a member of Citizens’ Board of Governors (“Board”) but not the Committee, acknowledged Citizens’ difficulty competing with the private sector in the area of compensation,  but voiced greater concern about the effect of elected officials reacting publicly to negative press.

“I think that is what really hurts the most,” Mr. Rollins said.  “These elected officials are very, very important.  They are our bosses and when people at Citizens hear those statements, they know their bosses are talking.”

In February, Florida Governor Rick Scott blasted top Citizens executives for “outrageous” pay raises-some as high as $31,000-and urged them to give the money back.   The Governor’s incensed comments were reported by news outlets across the state.

Mr. Rollins warned his colleagues that the “spin” or “slant” of a news article can’t be controlled, asking them to , ” . . . be measured in the way they consider a situation of Citizens before they take to the airwaves or newspapers.”

Citizens’ President and CEO Barry Gilway agreed that Citizens’ executive compensation is considerably lower than what is offered in the private market, but also said Citizens must better convey its accomplishments to the media.

“Unless we get that message out, we will continue to get negative (news coverage) from ill-informed members of the press,” Mr. Gilway said.


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

The Committee then took up its agenda and considered a recommendation that the Board approve overall average rate increases of 8.6 percent and 3 percent, respectively, for Citizens’ Commercial Residential Multi-Peril (“CRM”) policies and Commercial Residential Wind-Only (“CRW”) policies.

These proposed 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 Committee members noted that 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.

The proposed 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.

During the brief review by territory, Citizens’ Chief Actuary Brian Donovan noted that territories within the Seacoast Zone 1, which includes Miami-Dade, Broward, Palm Beach, Indian River and St. Lucie counties, showed the largest indicated rate changes, with the two highest rate changes in Miami-Dade County at 25.5 percent and 31.9 percent, accounting for more than $20 million in premium. 

To view a chart of the indicated rate changes by territory, click here (Page 2).

“I am pleased to report that the rate need, except for Dade County is less than 10 percent, so that’s good for our customers.  For Wind-Only policies that same holds true – there are two territories in Dade for which the indication is more than 10 percent,” said Citizens’ Chief Financial Officer Sharon Binnun. 

If approved by the Board, 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.  Another for expenses based on industry data, rather than Citizens actual cost data, was also included, according to Mr. Donovan.

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


Mobile Home Additional Structures Buy-Back Proposed

Mobile home screened enclosures and attached carports would once again be eligible for insurance coverage under a proposal the Committee recommended for Board approval with a 3-2 vote.  Although Committee members were skeptical about again offering insurance for such structures, the issue was forwarded for Board consideration because many mobile home owners need the coverage and have voiced much interest in the issue.

Committee members said they didn’t want an issue of such interest to die without ever being considered by the Board.

The proposal includes a 16 percent surcharge for coverage for carports and screened enclosures.

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

Mr. Rollins, who has consistently voiced opposition to insuring such structures, did so again, calling it a “public policy issue” larger than Citizens is able to address.

“I don’t support extending coverage to structures that cannot be maintained worthy.  To me, it’s a public safety issue.  Carports and related structures turn into missiles under hurricane force winds,” he said.

Under a Staff proposal, a “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, Mr. Donovan explained.

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.  This request was based on market feedback that the removal of these coverages earlier in 2012 created challenges for some mobile home policyholders for the following reasons:

  • Adjustments to Coverage A to address removal of the coverage for these structures exacerbates existing challenges meeting mortgage requirements;
  • Some mobile home community prospectuses require that residents obtain insurance for these structures. Mobile home representatives have argued that Citizens has a legal obligation to insure these structures if coverage is required in the prospectus, however, Citizens legal staff has stated that the State-run insurer does not have a legal obligation to offer this coverage.
  • Inability to obtain insurance for these structures leaves policyholder with unacceptable financial risk


Builders’ Risk

In response to a request from the Florida Cabinet, Builders’ Risk insurance was eliminated last year from Personal and Commercial Lines, effective March 1, 2012 for new business and June 1, 2012 for renewals.

However, there is the 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.

Because of the lack of available coverage and Citizens’ statutory obligation to provide wind coverage when the private market does not, it was proposed that Citizens offer Builders’ Risk with the following coverage limitations:

  • 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.

It was further noted that 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.

Carol Everhart, who is both a Board member and a Committee member, also voiced concern about properties that were not completed within a 12-month time period, saying she was not sure that handling them on a case-by-case basis was the best policy.  Instead, she suggested putting specific rules in place to govern any extensions, explaining she felt that not all cases are treated the same and thus could cause problems.

She suggested the terms might possibly be included in Citizens’ underwriting rules, such as another three-month extension carrying a premium charge.

Mr. Rollins wanted to know what percentage of Builders’ Risk policies result in a need to extend completion of construction beyond a year.  The response he received was that 10 policies out of 400 needed an extension last year.

It was Mr. Gilway’s opinion that, in order to eliminate as much inconsistency from the underwriting process as possible, handling it on a case-by-case basis makes more sense.

The Committee subsequently voted unanimously to recommend the Board restore Builders’ Risk insurance with the above-mentioned limitations.


Short-Term Rentals

 How to handle the controversial subject of insuring short-term rentals drew much discussion at the meeting, with several motions being made, withdrawn or failing.  Ultimately, because Committee members differed on how the matter should be handled, it was decided that Citizens’ Staff should instead consult with the OIR and other sources and present the Board with both a Wind-Only and Multi-Peril approach.

The Committee did, however, vote to recommend approval of 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 Staff proposal that Citizens’ current Personal Lines Wind Programs be revised to allow Wind-Only short-term rental policies will be considered by the Board at its March 22, 2013 meeting.

During further discussion, Committee member and Citizens’ Chairman Carlos Lacasa said he believed that writing Wind-Only policies represents a loss of premium opportunity, while adding more risk to Citizens.

He suggested Citizens write Multi-Peril policies to garner more premium.

“Just because we are a residual carrier doesn’t mean we can’t be a smart carrier,” he said.

But Committee member Tom Lynch didn’t like the idea, noting that Citizens’ long-term goal is to shrink in size as the insurer of last resort.

“I don’t think we should get back into the business,” Mr. Lynch stated.  “I am opposed to us expanding the program.”

Mr. Rollins said Wind-Only policies are appealing because they are written at a much lower rate.

Mr. Donovan noted that the Wind-Only rates are much more inadequate in the coastal zone, adding that he has seen instances where Wind-Only rates are 100 percent inadequate, which means the fair rate would be double what a customer is currently paying.


Other Matters

In other business, the Committee:

  • Unanimously voted to approve a Staff proposal to amend the 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. 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.
    • Underwriting rules should differentiate between the original owner that filed the sinkhole claim and determined how the claims proceeds were spent, and the new owner of the property. The real estate disclosure documents would be requested to substantiate claims that the new owner was unaware of prior sinkhole issues.
  • Recommended Board approval of an array of “CORE” product changes, including general updates, reformatting and reorganizing of manuals, and form revisions. There will be no rate impact from any of the proposed changes.
  • Recommended Board approval for the clarification of language related to the application of the shutter deployment incentive.
  • Approved Commercial Lines manual changes to include reformatting and reorganizing, and updating of rules to improve alignment with industry standards. A complete Commercial Non-Residential Multi-Peril manual was developed to incorporate all eligibility and rating rules, rather than referencing ISO manuals.
    • Specifically, references to tropical storms in the current endorsement will be deleted and the incentive will apply only to hurricanes as defined by Florida statute and used to determine applicability of hurricane deductible. In regard to geographical distances, the incentive would be triggered only if the insured property is located within a part of the state that was covered under a hurricane watch or warning.
    • Current incentive levels based on underlying average hurricane costs will remain the same as they are now.
  • Recommended Board approval for the following additional exceptions to the currently filed and approved wind short rate cancellation rule:
    • The policyholder has had continuous wind coverage with Citizens and/or any other carrier for three or more years
    • The policyholder’s mortgage has been paid in full

    With no other business before the Committee, the meeting was adjourned.

    To view the complete meeting materials, click here.


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