Citizens Property Insurance Actuarial Committee Recommends Limits on Water Damage Claims; Board of Governors Hears Public Comment at Subsequent Rate Workshop

Jul 16, 2012

Above:  State lawmakers, residents and other members of the public attended the
Citizens Property Insurance rate workshop in Miami today, July 16.


Actuarial and Underwriting Committee Report

Policyholders who incur water damage in their homes will face a $15,000 limit on claims due to water loss, including accidental discharge, plumbing leaks and other backups if Citizens Property Insurance Corporation’s (“Citizens”) Board of Governors (“Board”) approves a proposed homeowners’ policy limitation later this month.  The contract revision is aimed at reducing Citizens’ exposure to water losses.  It was noted that about 35 percent of water losses are more than $15,000.

Citizens Actuarial and Underwriting Committee (“Committee”) unanimously voted to recommend Board approval of the proposed coverage limit during a meeting today, July 16, 2012, at the JW Marriott in Miami, which convened prior to a scheduled four-hour long public workshop on Citizens’ rates.  To view the meeting materials, click here.

The Committee also recommended that the Board approve the following changes:

  • Increase the minimum non-hurricane deductible from $1,000 to $2,500 for all occurrence-based policies and calendar year policies with higher valued limits
  • Introduce options for non-hurricane deductibles of one percent, two percent and five percent
  • Eliminate the $1,000 minimum “other wind/hail” deductible and replace with a one percent minimum; introduce five percent and 10 percent “other wind/hail” deductible options
  • Implement language for sinkhole coverage options to allow proportional exclusion if the loss is partially caused by “earth movement”

The Committee tabled a proposal that introduced an optional 10 percent hurricane deductible for condominium buildings and businesses’ hurricane and “other wind or hail” coverage for further study.  Board member Carol Everhart wondered if any private insurers offered such a high deductible, saying she was not aware, if so.

“I do have information that the maximum they would allow is a five percent hurricane deductible,” Ms. Everhart said.  She called the option “dangerous” and “not in the best public interest.”

Board member John Wortman said he would like to consider the 10 percent hurricane deductible because it would help policyholders manage their premium.

Board member John Rollins suggested possibly issuing an agent bulletin to gauge reaction and garner input.

Board Chairman Carlos Lacasa requested that Citizens research whether it could pursue developers and contractors for faulty construction in relation to sinkholes.  Citizens General Counsel Dan Sumner said that, in order to do so, Citizens would need different legal parameters in place.

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


Citizens Board of Governors Rate Workshop

The message at Citizens’ public workshop on rates was the same as it was during a similar forum a month ago:   Florida’s weak economy can’t bear higher insurance rates, and struggling homeowners are moving away because the costs are simply too steep.

To view the workshop materials, click here.

No amount of insistence that current insurance premiums are not actuarially sound could stem the tide of discord as state lawmakers, consumer advocates and frustrated homeowners stepped to the podium one by one to tell Citizens Board that the current system is deeply flawed.

Held immediately after the Actuarial and Underwriting Committee meeting this morning, the workshop’s goal was to focus on rate inadequacy and consider whether to uncap rates for new customers beyond a 10 percent annual cap approved by legislators.  Instead, what Board members heard was a litany of complaints.

Citizens is proposing an average statewide increase for personal residential policies of 7.5 percent.

State Representative Carlos Lopez-Cantera urged Board members to carefully consider how the decisions they make affect “people you may not think about.”

“They have tough decisions to make.  Insurance is a requirement for many of them and they are drowning,” Representative Lopez-Cantera said, pointing out that many homeowners are being forced to choose between food, medicine and air conditioning because of skyrocketing insurance costs.  Removing mitigation credits from homes and disregarding homeowners’ efforts to “harden” their homes is adding to the devastating consequence, he said.

Citizens President and CEO Barry Gilway, on the job for about a month, said he senses “very little appetite either on the Board, within staff or elsewhere to make dramatic, substantial changes in the marketplace that would affect the overall economy.”

Nevertheless, he noted that statutory limitations on rate increases are causing rates to become more and more actuarially unsound every year.

“The reality is that the gap is widening and that subsidies within the structure are increasing,” Mr. Gilway stated.

He said Citizens needs to do a better job educating the public about insurance and do more to help Floridians make a more informed decision on their insurance purchases.

“We do a very poor job of educating the public regarding insurance.  In fact no one really understands what we are doing,” Mr. Gilway said.  “We need to show the difference in coverage between Citizens’ product and the private carrier product.”

He said also does not believe homeowners understand the assessment risk that comes with Citizens policies.

“The reality is we have a 50 percent premium differential.  It is virtually impossible to overcome that gap . . . We have to move forward in a measured manner to overcome that gap,” Mr. Gilway added.

One program under fire is Citizens’ mitigation inspection program, which has caused 70 percent of policies statewide being revised upwards.  Board Chairman Carlos Lacasa said the inspectors have been likened to “cops trying to fill a quota.”

Eric Ordway, senior director of vendor relations for Citizens, said inspector training, credentialing and quality assurance has been carefully reviewed as a result.  He said public perception of the program is critically important to Citizens.

Discussion also touched on rate indications, before turning to public testimony.  Board member John Rollins explained that the amount of capital required to write property insurance exceeds the premium, unlike with auto insurance, which funds losses from premium.

“For Citizens, that number is closer to 10 or 12 to one,” Mr. Rollins pointed out.  “That means we have to have that much capital on standby in any one year.”

Reinsurance, premiums and assessment authority provide the capital, he explained.

“So frame the problem as one of choice.  The cost is real.  It’s simply whether we choose to acknowledge it by including it in the rates,” Mr. Rollins said.

State Representative Frank Artilles wondered if the high prices charged by Citizens in Miami-Dade and Broward County could be allocated more fairly throughout the state.  Claims that North Florida is subsidizing South Florida is sheer propaganda when North Florida has been affected by more hurricanes than South Florida, he noted.

“How can we continue to increase South Florida rates without having the rest of Florida not pay their fair share when they have actually taken the brunt of the storms,” Representative Artilles asked the Board.  The assessments will be subsidized by South Florida, the most populous area in the state, he noted.  He also complained about Citizens rising cost of litigation, noting that the use of litigation specialists jumped from 15 in 2009 to 55 in 2012. 

Meanwhile, one of his own public records requests for information continues to linger unanswered, with Citizens demanding a $1,800 fee for the documents, Mr. Artilles noted.

“I do not believe a rate increase at this time is right because you do not have your own costs under control,” Mr. Artilles added. “We don’t have a choice in Miami-Dade County because no one else wants to write.  We are forced to be with Citizens.”

The group of about 50 attendees burst into applause.

Barbara Zee, a representative for the Community Advocacy Network – an umbrella organization of associations – said many homeowners can’t get insurance through Citizens and have been denied by the private market as well.  Manufactured homes and homes in Monroe County face dire prospects, she said.

One homeowner who had purchased a $150,000 manufactured home told her he was going to have to move out of Florida because he couldn’t get insurance anywhere.

“That is not a piece of trash,” Ms. Zee noted.

“I can’t see how you can refuse someone in Key West if they can’t find anyone else to insure them,” Ms. Zee added.

Edward Smith, who represented a condominium association in Miami-Dade County, predicted the housing market will “be dead” with all the changes that affect transient rentals and condominiums.

“I don’t know what you are going to do in Monroe County that is going to cause another insurer to want to write insurance,” Mr. Smith said, shaking his head.

Fort Lauderdale property owner and developer James Curry said he knows many people who have dropped their homeowners insurance and others who have left the state because of skyrocketing costs.

“There is only so much money in the property owner’s purse.  Insurance is now almost as much as property taxes are for many property owners,” Mr. Curry stated. “It’s crazy.  There is something fundamentally wrong when that model drives rate payers out of the state.”

Jay Neal, executive director of the Florida Association of Insurance Reform (FAIR), predicted the proposed change in water damage limits will be disastrous.

“This is not an easy situation, but we are in almost a mentality of siege . . . we all agree Citizens should be smaller, a true residual market of the last resort, but we have got to look at how we are going to get there and take the policyholders out of the crossfire,” Mr. Neal stated.

Waldo Faura, a candidate for the Florida House of Representatives and a public adjuster by trade, also predicted disaster with the proposed water damage limit.

To anyone who might be interested, he offered to show 10 claims from 10 different homes that incurred water damage, and how they affected the individual families.

“People are suffering.  We need to take a good look at this,” Mr. Faura said.

Chairman Lacasa said they are aware of the concerns and will take them into consideration.

“The sensitivity of rate shock and the macroeconomics of what these rate changes cause – we talk about these things all the time,” Chairman Lacasa said. “It’s complex stuff.  I want everybody from the public to know we worry about this stuff every day.”

Mr. Gilway also acknowledged the concerns, saying what was voiced during the workshop was not news.

“I think the emotion behind the issues really come to light in this kind of forum,” Mr. Gilway stated.  “We certainly have to abide by the overall directions that are being provided to us but we have to be cognizant of the effect it has on our customers.”


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