Citizens Property Insurance Corporation Actuarial and Underwriting Committee Report: May 2010

May 10, 2010

As reported to Citizens Property Insurance Corporation (“Citizens”) Actuarial and Underwriting Committee during its May 5, 2010 teleconference, an expedited application submission process has been developed in an effort to help customers of two recently liquidated Florida insurers secure property insurance coverage before their current policies expire on May 31, 2010 – the day before hurricane season officially begins.

A Leon County judge ordered the liquidation of Magnolia Insurance on May 4 and the cancellation of the company’s 40,000 policies at the end of May.  This follows the April liquidation of Northern Capital Insurance Company, which had 60,000 policyholders at the time.  Those policies will cancel on May 31 and will need to be rewritten prior to June 1, 2010.

Citizens’ agents are being directed to attempt to find new coverage for these policyholders in the voluntary market.  If coverage is unavailable and the risk otherwise meets all of Citizens’ eligibility requirements, agents can re-write the risk to Citizens using this process:

  • Completion of an electronic application in Citizens’ ePAS system;
  • Submission of a current declarations page from Magnolia or Northern Capital;
  • Documentation to support any requested coverage or rating variances from the current declarations page; and
  • Premium payment.

Agents are being encouraged to submit all required documents electronically in order to avoid a nonrenewal notice being sent to policyholders six months in advance of the first policy term expiration date. 

For policies previously assumed from Citizens as part of a takeout, no additional documents beyond the electronic application will be required if these documents were provided for the prior Citizens policy.

For policies not assumed from Citizens, a signed application and all supporting documentation normally required for a new business submission must be submitted during the first policy term.

While agents have one year to submit required documents as indicated above, regional underwriters may request documentation regarding any concerns noted during the expedited submission process.

Citizens requires coverage to reflect 100 percent of replacement cost.  If requested coverage limits differ from those shown on the current declarations page, acceptable valuation documentation must be submitted.

For  lienholder-billed policies, Citizens will issue the policy and bill the mortgage company.  For policyholder-billed policies, Citizens will issue the policy upon receipt of the minimum required premium. This amount should be submitted within five business days of the policy effective date to ensure no lapse in coverage.

If the premium payment is not received within 21 days of the effective date, the policy will cancel for nonpayment.

Joe Bouthillier, Citizens’ Director of Agent Services, told the Committee that additional inspectors and underwriters were being positioned to handle the expected influx of applications.  He said that for previously-held Citizens policies, the expedited process will work most efficiently if agents can locate the original Citizens policy number. Without it, the applicant may have to go through the mitigation process again.

To view the Executive Summary of the Expedited Submission Process, click here.

The following matters also were discussed by the Committee at its May 5 meeting:


Inspection and Outreach Program Update

Mr. Bouthillier reported that a total of 1,454 additional inspections have been ordered under the Inspection and Outreach Program pilot study since his most recent report in March.  These inspections are in various stages of scheduling and acceptance and most have not been completed, although he predicted that the process would be complete no later than the middle of June 2010.

Mr. Bouthillier said that a contract was signed with Inspection Depot on April 20, 2010 that will continue the interim inspection program through 2010.  On April 30, an additional 2,000 inspections under the interim contract were ordered – 1,850 for personal lines accounts and 150 for commercial lines.  In addition, Mr. Bouthillier said more than 200 Citizens employees have been trained in mitigation principles in conjunction with Inspection Depot.

Accommodating the larger volume of inspections planned for 2010 will include opening up participation in the program through Inspection Depot to all qualified inspection management companies and inspectors that want to participate. Increasing the number of inspectors participating in the program will make it possible to expand the program statewide while also significantly increasing the number of properties inspected monthly.  An online registration portal for interested inspection companies and inspectors will be created.

Also, new underwriting procedures regarding the handling of inspection results are being planned.  These changes are expected to significantly reduce confusion for agents and policyholders that had been caused by the receipt of multiple endorsements related to a single inspection.   To view a summary of the changes, click here.

On April 26, 2010, Citizens published a competitive bidding solicitation for a vendor to manage the inspection program through 2011 and beyond.  While the pilot study and interim contract have focused primarily on mitigation features and credits, the long-term goal of this program is to create an inspection program for the verification of all underwriting data across all lines of business.

An extended discussion among the Committee Members followed regarding the question of when policy pricing adjustments can be made if an inspection determines that the insured has been charged too much or too little relative to the risk assessment of the policy.   Mr. Bouthillier stated, and Citizens’ Counsel confirmed, that according to the Florida Insurance Code, Citizens must return overcharges to the policyholder immediately.   However, corrections to undercharges can only be implemented at policy renewal (unless the undercharge is detected within 90 days of the policy’s inception).

Committee Chairman Earl Horton expressed his view that the disparity in the rules for correcting overcharges and undercharges is unfair to Citizens, particularly if the reason for the undercharge can be traced to fraud or misrepresentation.  Mr. Bouthillier said it was his understanding that the rationale behind waiting until renewal to correct an undercharge situation was to give the policyholder time to examine and possibly dispute the report, or perhaps make modifications to the property.  

This explanation failed to mollify Chairman Horton’s concerns.  It was stated that misrepresentation by a policyholder would be an exception to the 90-day limit on correcting the price on new policies, but that proving misrepresentation can be difficult if the policyholder used the services of a professional adjuster or agent.  The Chairman said he believed that it was unscrupulous agents and adjusters inclined to misrepresent risk assessments as a tactic for attracting new business who were responsible for many of cases of misrepresentation and fraud.

“My theory is, our responsibility is to keep Citizens solvent,” Mr. Horton said, explaining his adamancy about the issue.   “This is a lot of money being lost and it’s my responsibility to see that we get it back.”

The Board took no specific action on this item, but Citizens’ staff indicated that an inquiry on the matter would be made to the Florida Office of Insurance Regulation (“OIR”). 

The Board also requested more information about the cost of inspections, particularly details regarding why the cost of commercial lines inspections was so much greater than personal lines inspections.

To view the Inspection and Outreach Program Update executive summary, click here.

Additional related materials include:


Legislative Summary

An analysis of two bills passed during the 2010 Legislature was presented, along with an overview of how the proposals likely would affect Citizens.

Citizens’ Legislative Director Christine Ashburn said that, while she could not anticipate the likelihood that Governor Charlie Crist would sign the omnibus property insurance bill (CS/CS/SB 2044), it was her understanding that the Governor’s staff was recommending that he do so.  As of May 5, the bill had not yet been forwarded to the Governor.

Provisions of SB 2044 that would have the most significant impact on Citizens include:

  • A requirement, effective June 1, 2010, that a claim, supplemental claim, or reopened claim under a personal lines residential insurance policy filed for loss or damage caused by the peril of windstorm or hurricane is barred unless notice of the claim, supplemental claim, or reopened claim was given to the insurer in accordance with the terms of the policy within three years after the hurricane first made landfall or the windstorm caused the covered damage;
  • An exemption for Citizens from the 100-day non-renewal notice requirements for policies that have been removed through takeout.  Instead, at least 45 days notice of non-renewal would be required.
  • Delay until December 1, 2012 of the requirement that Citizens’ Board of Governors review and revise the High-Risk Account (“HRA”) boundaries;
  • Limitation of the amount of compensation that a public adjuster can receive on a reopened or supplemental claim to 20 percent of the re-opened or supplemental claim payment;
  • Changing the HRA name to the “Coastal” account wherever referenced in the bill, along with providing for future changes during the 2011 Legislative Session to make to all references throughout the Florida Statutes.

Ms. Ashburn also reported that legislation relating to loss assessment coverage in community associations (CS/CS/CS/SB 1196) that was passed in 2009, but vetoed by Governor Crist, “should be signed without issue” by the Governor this year.

The Legislative Summary can be viewed by clicking here.


Rate Update

It was reported that the new multi-peril, multiplicative base rating plans have been filed with the OIR for all personal lines of business.  Some approvals have been received, while other filings are still pending.

The effective date of the new rating plans will coincide with the new 2011 rate level (January 1, 2011 for personal residential multi-peril policies and February 1, 2011 for personal residential wind-only policies)

Work has begun on the rate indications for the 2011 rates.  Non-hurricane premium indications will be based on historical premium and loss data from 2005 through 2009, with the losses evaluated as of March 31, 2010

Hurricane premium indications will be based on the results from the following hurricane models:

  • For personal lines, the Florida Public Hurricane Loss Projection Model is required to serve as the minimum benchmark for setting Citizens’ rates; however, the Florida-approved AIR Worldwide Model will be incorporated into the indication as well.
  • For commercial lines, hurricane premium indications will be based solely on the AIR Worldwide Model.

Citizens will not purchase the Florida Hurricane Catastrophe Fund Temporary Increase in Coverage Limits layer, nor private reinsurance for 2011.

For upcoming indications, the OIR has ordered Citizens to address the following:

  • For the residual market contingency provision, calculations and consideration of the 1.75 percent tax-exempt surcharge and the potential 15 percent policyholder surcharge must be considered.
  • Grouping of territories for credibility issues for both the non-hurricane and hurricane territorial indications must be considered.
  • For the HRA, the 15 percent catastrophe financing surcharge in the indication calculation must be included.


Non-Catastrophe Losses Update

Ongoing activities designed to improve Citizens’ non-catastrophe loss results were reported.

Citizens Director of Actuarial Services Kimberly Abate reported that an early-response program to quickly assess water damage claims is scheduled to go into effect in the first quarter of 2011. “The earlier we get in to assess water damage, the less damage should result,” Ms. Abate said.

Ways to improve loss results related to sinkhole coverage are continuing to be researched.

Ms. Abate also added that Citizens’ Special Investigative Unit recently began tracking new suspect claims related to cooking fires.

To view the Non-Catastrophe Losses Update Executive Summary, click here.   



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