Florida House and Senate Hear Presentations on Citizens Property Insurance, Florida Hurricane Catastrophe Fund, Windstorm Mitigation Credits
Jan 17, 2013
Insurance-related committees in both the Florida Senate and House of Representatives heard presentations from high-level officials this week on issues impacting the Florida insurance market.
Below is a summary of each meeting:
House Insurance and Banking Subcommittee
The Florida House of Representatives’ Insurance and Banking Subcommittee (“Subcommittee”) met on Tuesday, January 15, 2013, during which it heard presentations on wind mitigation and Citizens Property Insurance Corporation (“Citizens”) assessments.
Frank Lavelle, Principle Engineer for Applied Research Associates, gave a presentation on Florida’s wind loss mitigation system, which he framed with Hurricane Andrew in 1992 as an “epic turning point.”
The concept of rate differentials reflects the fact that mitigated houses are expected to have lower losses in hurricanes, he explained. This factor is applied to an insurance company’s base wind rates as a credit or a surcharge.
Wind loss mitigation rate differentials are verified through enormous amounts of research conducted from lab, field, insurance claims, and hurricane data. An on-site property inspection is essential, he said, because it provides verification to insurers that installation of mitigation measures has been done completely and properly.
Over two million Florida homes are estimated to be receiving wind loss rate differentials, Mr. Lavelle continued. However, for a typical building, credits may exceed 50 percent of premium.
A uniform inspection form has been adopted in an effort to help insurers streamline the process of determining policyholders’ mitigation eligibility. Despite previous issues with the quality of inspections, many insurers developed a re-inspection program to improve data, Mr. Lavelle related.
Ken Ritzenthaler, an actuary with the Florida Office of Insurance Regulation (“OIR”), reviewed the history of wind mitigation credits and related issues involving recent insurer rate filings. He noted that wind mitigation credits were first passed by the Florida Legislature in 2001, but several delays in their implementation followed. Mr. Ritzenthaler pointed out that most insurers use the OIR’s suggested system of credits, but that at least two companies have filed and used their own credit system.
Citizens Property Insurance Corporation (“Citizens”) President and CEO Barry Gilway testified that that the best way to reduce hurricane loss is through mitigation credits, and that Citizens supports a system of both credits and incentives. Although Citizens is financially able to support wind mitigation credits, he said, they remain a public policy issue.
In 2012, Citizens provided $1 billion of wind mitigation credits-a substantial increase from 2011, during which the State-run insurer provided $600 million in credits. Over the past two years, Citizens has seen a 13 percent increase in the number of its policies receiving wind mitigation credits.
The Subcommittee then heard a presentation on Citizens’ assessment potential from Citizens’ CFO, Sharon Binnun, who explained that Citizens has $19.7 billion in claims-paying capacity. This includes $5.1 billion in pre-event liquidity and $1.5 billion in reinsurance. Ms. Binnun also explained how assessments are paid to Citizens.
Also presenting to the Subcommittee, Florida Hurricane Catastrophe Fund (“FHCF”) Chief Operating Officer Dr. Jack Nicholson outlined the FHCF’s role in the Florida market and the history of some of the statutory changes to the FHCF over the years. He pointed out that the FHCF needs to be able to issue enough bonds in time to prevent insolvencies. It also needs to have enough liquidity to pay claims quickly.
Florida Insurance Guaranty Association (“FIGA”) General Counsel Tim Meenan then reviewed for the Subcommittee the history of FIGA, what it covers, and how it levies assessments.
Senate Committee on Banking and Insurance
The Florida Senate Committee on Banking and Insurance Committee (“Committee”) met yesterday, January 16.
During the meeting, Chairman David Simmons discussed his opinion on proposed solutions for the future of Citizens. Among the suggestions he cited was providing reinsurance for Citizens with the “right” reinsurers. He said Citizens has to “stop the bleeding” and can’t be allowed to continue to increase in size.
In his presentation to the Committee, Florida Chief Financial Officer Jeff Atwater said the situation regarding Citizens is “extremely fragile,” and if Florida were to experience a catastrophe similar to Hurricane Andrew again, it would be detrimental to the state.
CFO Atwater said he knows most Committee members share the same goal-to create a more robust insurance marketplace. He noted the need to achieve this in a timely manner.
Citizens’ premiums in Miami-Dade have increased 50 percent since 2004, but are still significantly less than they need to be. Citizens has experienced a huge expansion, but not in its Coastal Account-which is the high-risk Citizens was originally designed to cover.
Senator Jeremy Ring asked if a bill that solely focused on Citizens was really the answer, or if the Committee should instead address the numerous issues that have a role in increasing Citizens’ size. CFO Atwater did not provide a specific solution, but asked the Committee to exhaust all options, look to the facts and evidence, and allow data to drive the decision.
Florida Insurance Commissioner Kevin McCarty presented the Committee with various options to depopulate Citizens, explaining that he wants to return to a free-market approach, enhance Florida’s attractiveness to insurers, align policyholder risk and reward, expand risk-sharing opportunities, reduce Citizens’ overall exposure, and ensure policies and coverage are meaningful for Florida consumers. The issue with Citizens, he said, is that it is too large. Further, it is insuring multiple types of policies with lower rates than those of private carriers. Citizens continues to grow, and is currently writing 8,000 new policies a week.
Chairman Simmons asked Commissioner McCarty whether it was good public policy to be writing coverage that costs much less that a private market policy, but that would not cover a total loss, or allow a policyholder to rebuild his or her house. Commissioner McCarty agreed with Chairman Simmons’ conjecture, and the need to provide Citizens’ customers with a quality product.
Commissioner McCarty and Mr. Gilway reported that they have been working together diligently on Citizens’ depopulation. Mr. Gilway also agreed with Commissioner McCarty that there is more capital available for Florida insurers today than before. Both expressed their objective of capital infusion into the private marketplace.
To view the meeting packet, click here.
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