Citizens Property Insurance Actuarial and Underwriting Committee Agrees to Send List of 30 Recommendations for Reducing Policy Count to Governor Scott for Consideration

Dec 2, 2011


At its meeting on November 30, 2011, Citizens Property Insurance Corporation (“Citizens”) Actuarial and Underwriting Committee (“Committee”) approved a list of 30 recommendations to downsize the state-backed insurer.  The changes would not require legislative action.

To view the meeting materials, click here.

Governor Rick Scott last month requested that Citizens come up with a list of possible ways to downsize its 1.5 million policies, which currently make it the largest insurer for homes and businesses in Florida.  If a major storm strikes Florida and Citizens does not have adequate reserves to cover the losses, Citizens could place a surcharge on nearly every insurance bill in the state to cover the deficit.

The proposed changes range from increasing deductibles for sinkhole coverage to capping coverage for coastal policies at $1 million in coverage, eliminating coverage for dropped objects, revising coverage for water damage, and evaluating the automatic expiration of wind mitigation credits after five years.

It was explained at the meeting that while capping coverage for coastal policies would affect the policy count, many of the recommendations would only impact Citizens financially.

“For example, the 10 percent deductible on sinkholes will help financially but probably won’t do a lot to help depopulate Citizens,” said Committee Chairman John Wortman.  The change would reduce Citizens’ exposure by $6.7 billion, it was noted.

“Most of these changes are not going to drive business back to the private market.  They will limit our exposure,” said Debbie Murphy, vice president of underwriting for Citizens.  She said the combined effect of the proposed changes would reduce Citizens’ overall exposure by $190 million.

Committee member Carlos Lacasa wondered what the impact would be on overall premium as the quality of the policies offered by Citizens is reduced.

“It would be nice to try to capture as much of the existing premium that we have.  I would sure like to know the impact on the total premium as a result of these reductions if we are not able to file similar rates as we have now,” Mr. Lacasa stated, adding that “I would love to be able to encourage private carriers to offer superior policies to what we offer at similar rates to be able to compete.”

The list of the proposed changes for Governor Scott to consider during the December 6, 2011 Florida Cabinet meeting follows:


Personal Lines

Effective May 1, 2012 for new business and June 1, 2012 for renewals

  • Implement mandatory 10 percent Sinkhole Deductible
  • Eliminate Personal Liability increased limit ($300,000). This is expected to reduce liability by $161 billion.
  • Eliminate the option to schedule individual Coverage B items.
  • Eliminate increased limit mold options on Property and Liability.
  • Eliminate increased Loss Assessment Coverage of $2,000/$3,000 (HO-3) and $3,000 (HO-6 types)
  • Discontinue Builders Risk at New Business; phase out in-force business; this is expected to result in $202 million reduction in exposure
  • Change Coverage B default to two percent; roll back in-force and require re-election of higher limits; reevaluate rates; 533,000 policies affected
  • Change Coverage C default to 25 percent; roll back in-force and require re-election of higher limits; reevaluate rates; 600,000 policies affected
  • Expand sinkhole inspection to additional 12 counties (total 16 counties)
  • Cap coverage in Coastal Account at $1 million; non-renew in-force over the limit; 7,600 policies would be affected with a $17.3 billion reduction in exposure
  • Eliminate coverage for losses caused by “dropped objects.” This currently contributes $10 million a year in losses.
  • Contract revisions to reduce exposure to water losses
  • Expansion of “vacancy penalty” to further restrict coverage and address additional occupancies
  • Elimination of liability coverage for incidental exposures related to auto, watercraft, animal, home business, and off-premises liability
  • Expansion of sublimit for high value personal property (jewelry, furs, guns, silverware) to all perils
  • Revision of underwriting guidelines to require 30+ year old homes to have a four-point inspection showing the electrical, heating and plumbing systems have been updated and are in good working order

Effective January 1, 2013 for new business and February 1, 2013 for renewals

  • Implement loss history surcharge program
  • Restrict Ordinance and Law to apply only to Coverage A
  • Evaluate automatic expiration of wind mitigation credits after five years from inspection


Commercial Lines

Effective Date May 1, 2012 for new business and June 1, 2012 for renewals

  • Eliminate coverage for all Special Class Items except for in-ground pools and masonry fences
  • Eliminate Business Income and Extra Expense Coverage
  • Discontinue Builders Risk at New Business; phase out in-force business

Effective January 1, 2013 for new business and February 1, 2013 for renewals

  • Increase minimum AOP deductible
  • Eliminate Coverage Extension for Increased Cost of Construction (Ordinance and Law)
  • Implement a sublimit for mold
  • Implement a mandatory 10 percent sinkhole deductible
  • Reduce Debris Removal from $10,000 to $5000
  • Remove Class B and C opening protection credits
  • Implement exclusion for losses where damage is only to exterior paint damage
  • Implement separate hurricane deductible for business personal property


The Committee also reviewed and discussed items related to short-term rentals, wood roofs, and storm shutter deployment, ultimately recommending them all for approval by the Board of Governors.

Short-Term Rentals

The Committee recommended that a pending update to Commercial Underwriting guidelines retain the current definition requiring 25 percent or less short-term rentals be eligible for the Commercial Residential program.  It also determined that timeshares should reflect their new status as Commercial Nonresidential risks, thus eliminating their eligibility for the Commercial Residential program.

Board member Carol Everhart wondered how Citizens would get accurate counts on short-term rentals and suggested that the Committee should defer action on the item until more information was available to better determine how many units in a building are rented.

“I would like to have seen what our actual numbers are on the short-term rentals – what we actually expect to see.  How will it affect our total underwriting profits and losses and how will it affect our exposure,” Ms. Everhart said.

Wood Roof Rule

The Committee recommended that the Board should approve implementation of the “Wood Roof Rule” in the Commercial and Commercial Residential Wind-Only program.  The change allows Citizens to consistently rate wind peril across all Commercial Lines products and accurately rate the differences in roof construction, it was noted.  The change amends the General Rating Rules Section of the Commercial Wind Underwriting manual that addresses classification of buildings with wood roofs.

“If there is a wood truss on any building, it will be classified as joist and masonry,” it was explained.

Shutter Deployment

The Committee recommended that the Board approve a 15 percent reduction in loss payments if storm shutters are not put up on covered risks during a tropical storm or hurricane.

“If the insureds are receiving an incentive for shutters, there needs to be an incentive for policyholders to deploy shutters during a storm,” it was noted. 

Inspections Program Update

Citizens’ Director of Vendor Relations Eric Ordway gave a brief update on the ongoing inspections program.  The highlights follow:

As of October 31, 2011:

  • Residential inspections include 61,836 completed inspections with a gross estimated premium impact of $42,733,349.
  • Commercial inspections include 2,645 completed inspections with a gross estimated premium impact of $1,795,157.

Mr. Ordway said the 2012 goal for Personal Lines is to complete 209,000 re-inspections.  For Commercial Lines wind mitigation credits and underwriting inspections, the 2012 goal is 7,600 buildings, he said.

To achieve the above goals, Citizens needs to add 276 additional inspectors for Personal Lines and 69 additional inspectors for Commercial Re-Underwriting, Mr. Ordway said.

In addition, 473 to 673 new inspectors would need to be added to accommodate new business, he said.

After Mr. Ordway’s summary, Citizens’ Chief Financial Officer Sharon Binnun stated that she wanted to make sure everyone understood that many opportunities for change would affect Citizens’ rate cap, and as a result, could be subsequently nullified or diluted.

“You have policies that are already at the max of 10 percent.  For the record, I just wanted to say – any changes we make that have a rate impact, the impact to us could be nullified or diluted because of the rate cap,” she said.

“It is important to charge the correct premium to individual policyholders, though it may not immediately bring additional dollars to the organization,” Ms. Binnun said. She added, “For new business, we are also limited by the rate cap. I just wanted to make sure everyone understood that.”

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



Claims Committee

Later in the day, Citizens’ Claims Committee heard status reports from several directors on claims to date.  To view the meeting materials, click here.

The following are highlights:


Claim Volume

Overall year-to-date claim volume through October 31, 2011 has increased 39.6 percent

  • Water-related claims increased 15 percent
  • Weather-related claims increased 44.3 percent
  • Burglary and theft claims increased 43.7 percent

Sinkhole Volume

The projected 2011 year end sinkhole volume is 4,543, or a 67.5 percent increase over 2010

  • Overall sinkhole volume is driven by Personal Lines new claims
  • 92 percent of sinkhole claims reported in 2011 are from Hernando, Hillsborough, Pasco, and Pinellas counties

Non-Catastrophe and Catastrophe Update

  • Policies in-force for Third Quarter 2011 were 1,460,672, up 18 percent from a year ago
  • Claims assignments for Third Quarter 2011 were 18,355, up 26.9 percent from a year ago
  • Sinkhole claims continue to rise in claims volume and average incurred losses

Litigation New Assignment Volume Continues to Increase

  • 6,629 assignments
    • 4,990 pending assignments
    • 1,279 inactive assignments pending closure

Independent Adjuster Resources as of October 31, 2011

  • 3,272 approved pre-qualified adjusters
    • 1,044 previously-approved independent adjusters not yet credentialed
    • 1,628 independent adjusters missing one or more required items

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



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