Citizens Property Insurance Corporation Board of Governors Meeting Report: April 26, 2012

Apr 27, 2012


The Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) met yesterday, April 26, 2012, during which it postponed a controversial measure to eliminate a 10 percent cap on rate increases for new policies.   To view the meeting materials, click here.

Prior to beginning discussion on uncapping rates for new business, the Board approved other Exposure Reduction Initiatives as part of the Actuarial and Underwriting Committee Report.  First, the Board adopted a motion to implement an HO-8 basic personal lines policy.  Citizens is required to do so by January 1, 2013 under HB 1101, passed during Florida’s 2012 Regular Legislative Session and signed into law by Governor Rick Scott on April 24.  Next, the Board adopted a motion authorizing Citizens staff to examine a higher minimum deductible for All Other Perils and make a report at the Board’s May 2012 meeting.

Moving on to discussion of eliminating the 10 percent rate increase cap for new business, Board Chairman Carlos Lacasa read portions of letters from Florida Chief Financial Officer (“CFO”) Jeff Atwater and Florida Insurance Consumer Advocate (“ICA”) Robin Westcott.  In his correspondence, CFO Atwater said that while he supports Citizens’ efforts to facilitate depopulation, the removal of the rate increase cap for new business is beyond the scope of legislative intent.  According to CFO Atwater, the Legislature did not contemplate that the pertinent statute, Section 627.351, F.S., would be interpreted in such a way as to apply two sets of rates to Citizens policyholders.  Chairman Lacasa reported that ICA Westcott’s letter mirrored CFO Atwater’s message of concern about the interpretation of the statutory 10 percent cap.

Board Member John Rollins said that efforts over the past six months have focused on bringing coverage to a level where it is not attractive, relative to the private market, which, he said, is appropriate for a “safety net insurer.”  He said that Citizens has accessed the “low-hanging fruit regarding exposure reduction.”  Mr. Rollins also said that while Citizens has a rate need that exceeds the glide-path, some territories show a need for rate decreases, based on 2011 analysis.  “If we thoughtfully and contemplatively create a rate filing addressing the rate need in each territory, not every consumer’s rate will go up,” he said.

Next, Senator Mike Fasano addressed the Board, speaking against uncapping rates for new business.  He said that doing so would have a detrimental effect on the housing industry and also hurt consumers who might receive a nonrenewal from their current insurers, and would then have to pay a higher rate in Citizens. 

“We’d all love to see depopulation of Citizens,” Senator Fasano said. “But private companies are not coming back into this area.  They won’t write in Pasco and Hernando [Counties] because of sinkhole claims.”  Senator Fasano said that even with new laws allowing insurers to write policies that don’t offer sinkhole coverage, “zero” private companies have offered to take policies out of Citizens.

Referring to his office as “the agent of last resort,” Senator Fasano said that he receives an average of a dozen e-mails and calls per week from frustrated Florida citizens.  He asked the Board to not consider even a study on uncapping rates for new business, saying that the Legislature did not intend for the 10 percent rate cap to only cover existing policies and not new policies. “Leave the people alone that are struggling today,” he said.

Mr. Rollins then offered an motion that would direct Citizens’ staff to further study the idea of uncapping new business rates for personal and commercial lines and to develop recommended “actuarially-sound” rates for filing for new business and the renewal glide-path rates; conduct an internal feasibility study of having two distinct rates for new and renewal business; and to engage the Florida Office of Insurance Regulation, legislators and other parties “early on” to elicit specifics on their stance of having distinct rates for new and renewal business.

Citizens’ General Counsel Dan Sumner then discussed language in Section 627.351, F.S., relating to the rate cap.  The statute reads that Citizens “shall annually implement a rate increase which, except for sinkhole coverage, does not exceed 10 percent for any single policy issued by the corporation, excluding coverage changes and surcharges.”

Mr. Sumner said that a reasonable interpretation is that a rate increase would only be applicable to a renewal policy, and that a new premium for a new policyholder is not a rate increase, but a new rate.  He said that this idea should be discussed with Citizens’ various constituencies.

Chairman Lacasa said that in the plain language of the statute, a new policy is not subject to the cap, because by virtue of being new, it is not yet “issued by the corporation.”

Speaking further about the applicability of the statutory 10 percent cap to new policies, Mr. Rollins asked, “If there is a new policy coming in, and you tell me you can’t increase their rate by more than 10 percent, it becomes 10 percent of what? Their old rate? A similar insured who is already in Citizens?”

The Board adopted the motion offered by Mr. Rollins.

Before moving on to other business, the Board approved two action items.  The first was an amendment to an existing agreement with Xactware Solutions, Inc., for Citizens’ replacement cost estimating (“RCE”) software.  The amendment increased the total contract amount to $6,884,768 for the total life of the contract, including all renewals.  This is a 47 percent increase, which is a result of three modifications, as outlined in the list of changes below:

  • Fee increase due to growth in Citizens’ Policies In Force (“PIF”) and Direct Written Premium (“DWP”): The original contract included a provision allowing Xactware or Citizens to require adjustment of the licensing fees if Citizens’ PIF or DWP changes by more than 20 percent. As of December 15, 2011, Citizens’ PIF had increased by more than 83 percent and DWP by more than 63 percent compared to the levels utilized by Xactware to base its pricing through the original competitive solicitation. The new licensing fees would apply to years two through five of the agreement.
  • Reporting Tool: Purchasing access to Xactware’s RCE reporting tool allows Citizens to perform analysis on all valuation estimates created by agents, vendors, and staff. Without this tool, Citizens is unable to analyze Valuation activity across its book of business.
  • Budget for Professional Services: In the future, Citizens might have a need to require Xactware to make modifications, custom to Citizens, to its system related to annual rate changes and future integration with Guidewire’s PolicyCenter. Like other software vendors, Xactware charges professional services fees for development costs incurred on their side for this type of work. As these amounts are unknown until the specific work is sized, and no budgeting was included in the original Consent Agenda, staff has included up to $50,000 per year for a total of $200,000 to this amended Consent Agenda, as estimated minimum amounts for the remaining life of this Agreement. Citizens would not spend these budgeted amounts unless applicable.

Chief Financial Officer’s Report

Citizens’ Chief Financial Officer Sharon Binnun discussed a revised 2012 budget requested by Interim Citizens’ President Tom Grady.   Specifically, Citizens’ staff prepared a two-year budget considering significant reductions in policy counts and exposure based on various assumptions.  These “very optimistic” assumptions included a policy count reduction by 600,000; a 50 percent reduction in the commercial lines account; sinkhole region policies in the personal lines account down 60 percent; non-coastal residential multi-peril decreasing by 445,000; and 11,000 fewer mobile home policies.  These assumptions were based on the thought of “how small can Citizens ever be in the best of worlds?”

Ms. Binnun weighed the idea of wanting the budget to be a plan of where Citizens thinks it will be or something of a statement in terms of a goal, which, in this instance, would be shrinking Citizens.

In response, a Board Member said, “A budget is a predicting tool, and that’s about it.  I don’t think anyone on this Board has tried to create demand for Citizens’ policies.  We’re all steadfast in our resolve to shrink Citizens.”

Board Member Tom Lynch said, “Our strategy can’t be to raise the prices of Citizens and it’ll get smaller.  We need to be an advocate for the private sector markets and encourage them to come in.  We need to work with the Legislature more closely.”

Mr. Lynch said that since Citizens’ policy count is already slightly down, and is anticipated to decrease further due to depopulation, he’d like to see a projection of a 10 percent decrease, 20 percent, and so on.  He also requested a projection of what Citizens’ “original goal” of writing wind-only would do to overall numbers.

Chairman Lacasa said that he wanted to avoid a “missed target” in terms of the budget, such as lowballing the policy count and then coming in higher at year’s end.  He said that he did not want to take up the revised budget recommendation at the current time, but rather incorporate the analytics for a Board workshop later in 2012. 

Next, Ms. Binnun described an emergency procurement related to services associated with a wind mitigation credit study for both the personal lines and commercial lines accounts.  The concern is that credits given might be in excess of what is appropriate.  Ms. Binnun explained that an emergency procurement of $50,000 is requested so the study can be completed in time for the summer rate filing.  A Citizens team would work with the proposed vendor, which would provide consulting expertise. 

Chairman Lacasa stated that an emergency procurement requires recommendation from the President, staff, and consultation with the Chairman, and that these steps were taken.

Chief Insurance Officer’s Report

It was announced that Joe Martins has accepted the job of Citizens’ Chief Internal Auditor.  Mr. Martins previously worked for Zurich Financial Services. 

Chief Administration Officer’s Report

The Board next considered a change to the application of the provision eliminating ceding commissions it adopted in February. 

At its December 14, 2011 meeting, the Board agreed to pursue enhanced depopulation efforts, including the elimination of the payment of ceding commissions to Citizens for the servicing and administration of policies during the assumed period until the expiration of the Citizens contract.   At its February 23, 2012 meeting, the Board approved an amendment to the two programs, removing the references to the payment of ceding commissions, and approving the elimination of ceding commission payments retroactively to assumption agreements entered into during the fourth quarter of 2011 and beyond.  By its terms, this provision only applies to new assumption agreements entered into during the fourth quarter of 2011 and later, and does not apply to policies assumed during the fourth quarter of 2011 and later that were removed under a pre-existing agreement.

The Board adopted a motion to apply the elimination of ceding commission payments retroactively to any assumption occurring during the fourth quarter of 2011 and forward.

Formal Appeal

The Board heard an appeal from All Claims Insurance Repairs pertaining to an RFP issued by Citizens in July 2011 for appraisal services for catastrophic and non-catastrophic property claims.  The contracts were awarded at the December 2011 Board meeting.  A company wishing to appeal the results of a Board decision has 21 days after its rendering, according to Section 25 of Citizens’ Plan of Operation (“Plan).  All Claims Insurance Repairs submitted an appeal on February 15, 2012, which is 62 days after the Board’s decision.

The owner of All Claims Insurance Repairs said that the proper format of an appeal was not specified, and that scoring information requested by the company was not received in time for them to meet the 21-day appeal deadline.

Discussion ensued regarding proper form of appeal, which Mr. Sumner said is a simple notification of an aggrievement within the 21-day timeframe.  Once an appeal is made, an exchange of information takes place as part of the appeal procedure.   He said that prior appeals have been interpreted this way. 

Chairman Lacasa asked why equities would not lie with the appellant, since the company requested scoring information after the second evaluation round, but did not receive it until after the final decision was made.

“If you are aggrieved by the decision, you do not need that information to perfect your timeframe,” Mr. Sumner said. 

Board Member Nancy Baily said that she could recall at least one appeal denied under similar circumstances.

Chairman Lacasa said that perhaps the recommendation could be to stick to precedent, but consider action items, such as timelier responses to information requests and clearer language in Section 25 of the Plan pertaining to appeals.

A motion to deny the appeal based on the timing issue was adopted.

The Board meeting was then adjourned.



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