Citizens Property Insurance Corporation Board of Governors Meeting Report: July 13

Jul 13, 2011


Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) met today, July 13, 2011, to hear operational updates from several Citizens committees and approve numerous consent agenda items related to technical services.

To view the agenda and meeting materials, click here.

After approving minutes from the March 30, May 11 and June 29 meetings, the Board heard reports from Citizens’ Chief Executive Officer Scott Wallace and Board Chairman James Malone, who both voiced great concern about Citizens’ skyrocketing policy count.  To date, the number of policies has reached 1,392,000, with an average weekly growth rate of 4,200 additional policies.

“Certainly from Citizens’ perspective, the Florida marketplace is not improving,” CEO Wallace said.  He predicted the fast-paced growth will not stop in the foreseeable future without significant changes in the insurance market.

Chairman Malone’s assessment of the Florida insurance market was even darker.  The guidelines under which Citizens operates from a legislative and administrative standpoint “don’t work,” he said.

“Think about it for a moment.  Almost a 1,000 people a day are migrating into Citizens, just more and more and more-concentrating a risk of a disaster to the State of Florida and its people,” Mr. Malone explained.  “You have this huge concentration of risk at under-market price, under-market value…”

He lauded the Florida Legislature’s move to allow private companies to charge more to cover risk, but said the change just sends more people to Citizens because its rates are so much lower.  The result is unchecked growth, he said.  He offered this possible solution:

“I think we ought to really consider privatizing a substantial portion of Citizens,” Mr. Malone said.  A base of about 800,000 customers who need an insurer of last resort with billions of dollars in assets, thousands of customers and a nice premium base should have value somewhere in the marketplace, he added.

“The State of Florida needs money and this could be turned into an asset that had a value that people were willing to purchase in the private sector,” Mr. Malone stated.  “If we take a segment of Citizens, make it a private company, then that takes it out of the legislative process, depending on what the market thinks something like that is worth.   I am out of ideas as to how to lower the risk to the citizens, the population of Florida and not have this train wreck coming at us.”

“I would like to officially kick that off as an idea in the public sector, get some input,” he said.

After hearing the two reports, Board members approved the following consent agenda items, most related to the purchase of technical services, with no discussion:

  • Automated Phone Dial-Out Services
  • Sinkhole Geotechnical Services
  • Security Guard Services Renewal
  • Right Now Technologies
  • System Integration Tool
  • Team Track Software
  • Security Access Control System

To view the Consent Agenda index, click here.

Citizens Chief Financial Officer Sharon Binnun followed with a status report on Citizens’ updated financials.

In the last three years, net assets have grown from $3.1 billion at the end of 2008, to $5.4 billion at end of the first quarter of 2011, enabling Citizens to have the cash for the timely payment of valid claims should a storm occur, she stated. 

With the purchase of private reinsurance, Citizens has an additional $575 million to reduce assessments should a severe hurricane strike Florida this year, she said.  Over 43 reinsurers are participating in the reinsurance program.

Citizens’ Chief Insurance Officer Yong Gilroy also spoke of rising policy counts, noting a year-to-date overall claims growth of 31 percent. He said at least four categories of policies will likely not be depopulated anytime soon:   Coastal Account policies (formerly High-Risk), sinkhole, older mobile homes and buildings 50 years or older.

Board members then voted to approve a recommendation by the Actuarial and Underwriting Committee to remove the Class C Opening Protection Credits and remove coverage for screened enclosures and carports.

In other action, the Board also voted to authorize the issuance of a competitive solicitation pursuant to SB 408 for purposes of contracting with an independent third-party with insurance company management or insurance company management consulting expertise to prepare a report and make recommendations on the relative costs and benefits of outsourcing policy issuance and service functions to private servicing carriers or entities performing similar functions in the private market for a fee.

The Board heard the Market Accountability Advisory Committee’s (“MAAC”) July 12 report with no discussion.  The report entailed an update on Citizens’ inspection program as of May 31, 2011.  Statistics included:

  • 32,628 inspection assignments were fully processed by Citizens’ Underwriting Department.
  • 577, or 1.7 percent of these assignments involved credits being removed from policies due to an inability to schedule inspections.
  • As a result of these inspections, there will be $15,535,192 in estimated premium increases at policy renewal.
    • 68 percent of the affected policies involved a premium change
    • 60 percent involved the removal of credits from policies, for a total of $16,262,180 in premium changes
    • 8 percent involved the granting of new credits to policies, for a total of $1,044,463 in premium changes

Of 17,365 policies with completed inspections as of May 31, 2011:

  • 85 percent were renewed
  • 15 percent are no longer in force
  • 45 percent of Commercial Lines policies and 14 percent of Personal Lines policies were no longer in force

Board members concluded the meeting with an array of complements and thanked each other for their terms of service.

“This organization serves a very, very important role in the state-always controversial, never perfect-but I think more and more people realize what a professionally run and managed group it’s become,” Chairman Malone said in closing.  “Every constituency that has helped from executive staff to the boards and administrative staff – these things don’t go the right way without good advice.”

“This is not a politically popular place to be,” Mr. Malone stated.  ” It’s not easy I guess for the politicians to tell their constituents things they don’t want to hear but it’s so terribly important that everybody in the state know the situation.  We have been very open and consistent in our message (about problems with risk and the rising policy count).”

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





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