Florida Lawmakers and Consumer Advocates Hear Concerns about Citizens Property Insurance During Public Forum; New President Barry Gilway Joins Via Video Conference
Jun 20, 2012
Citizens Property Insurance Corporation (“Citizens”) President Barry Gilway had only been on the job a few hours on June 18, 2012 when he found himself in the midst of a brewing firestorm as he tuned in via video conference to a three-hour long round table discussion in Miami on rising insurance rates.
It didn’t matter that the video connection wavered. Mr. Gilway’s snapshot of Citizens was still crystal clear: Over and over, frustrated insurers, irritated consumer advocates and angry homeowners told a panel of state lawmakers the same thing — if rates rise too quickly, Florida’s faltering economy will stumble and already-struggling homeowners will lose homes they are barely clinging to. They called for better choices, more reasonable rates and suggested a national windstorm pool as a possible solution.
Mr. Gilway, an insurance executive, assured those in attendance their concerns and suggestions would not fall on deaf ears. Citizens Board of Governors (“Board”) hired Mr. Gilway on June 13, 2012 as its new president.
“I like many of the ideas presented,” Mr. Gilway said, noting that the round table was a “great way” to start his career at Citizens. “Every single idea will be considered.”
State Representative Frank Artiles and Senator Oscar Braynon II hosted the event at Florida International University’s main campus to facilitate discussion on skyrocketing insurance premiums and obtain input from residents. In addition to numerous lawmakers and Florida’s Insurance Consumer Advocate Robin Smith Westcott, about 60 people attended the event.
Panelists opened the evening forum with an overview of Citizens’ claims-paying capacity, the different types of policies covered, Citizens’ assessment capabilities and an explanation of how rates might be affected in a one-in-25-year storm and the more severe one-in-100-year storm. Statistics from Citizens and the Office of the Florida Insurance Consumer Advocate were put on display.
“The impact from a 25-year storm is fairly negligible,” said Jay Neal, executive director of the Florida Association for Insurance Reform (“FAIR”). “The 100-year storm is the one that gets expensive but probably not as badly as some would assume based on the public discourse.”
In the first year after a 100-year storm, Citizens’ policies could incur a “weighted average” increase of 39.14 percent, while private company policies could increase 11.14 percent, Mr. Neal stated. The following years’ assessments would drop significantly, he noted.
Florida Senator Mike Fasano asked about the probability of a one-in-100-year storm striking Florida. Mr. Neal told him the chance of that happening is one percent. For a one-in-25-year storm the chance is four percent, Mr. Neal added.
Ms. Westcott noted that, when assessments are levied after a big storm, the money doesn’t cover damage from additional storms that could follow in close proximity.
“The cost becomes exponential because then you are working with less surplus, less capital,” she said. “If Citizens pays all its surplus after a 25-year event, then it costs more after that to start borrowing money.”
Monte Stevens, Director of Governmental Affairs for the Florida Office of Insurance Regulation (“OIR”), said Citizens would rely on funds it receives from bonding to pay claims. But he acknowledged there is a legitimate question to be asked as to whether Citizens would be able to bond for all the money needed to pay claims from a second storm.
“You have to remember we are talking about a scenario where not only (Citizens) would be in the bond market, but it’s very likely the Cat Fund would be in bond market and this would be immediately after a very large storm has torn through Florida,” Mr. Stevens said.
“There are some questions as to whether Citizens would be able to bond that much and therefore be able to pay the claims,” Mr. Stevens added. “I think that is a question mark as well.”
Citizens estimates that claims for its Personal and Commercial Lines accounts would total about $2 billion in a one-in-100-year storm. Claims for the Coastal Account (formerly known as the High-Risk Account) would total another $5.38 billion.
David Bierman, general counsel to Florida’s Insurance Appraisers and Umpires Association, wondered what might happen to the “underfunded” private market, as well as the Florida Insurance Guaranty Association, in such a scenario.
Mr. Stevens explained that the OIR conducts extensive stress testing on private insurers to make sure they have adequate reinsurance to limit insolvencies, but conceded there are no guarantees that a business will remain successful.
“Certainly it is a fair question as to whether every single agency will be around after a cataclysmic or catastrophic event,” Mr. Stevens said.
Bellen Valladares, of Floridians in Action, told the panel she is tired of hearing stories about how insurance companies are losing money and wants Citizens to come up with more realistic assessments.
“I don’t want to hear you speak about how much money they are losing. That is not true,” Ms. Valladares said.
“They are watering down policies so much that policies are not going to be good for anything other than to show the bank you have a policy,” she said.
Mr. Stevens explained that the rate making process is done prospectively, which means that a rate is projected for the next year based on predictive modeling. He conceded that insurance companies are currently faring very well.
“There is no question that insurance companies are doing very well right now, at least in this particular marketplace. When you have a series of years without storms that is generally good for insurers,” he said.
But Ms. Westcott said it has not been all “sunshiny” for insurers.
She said a lot of the publicized numbers about insurance companies making “big money” are for certain lines of business, such as auto insurance. Numbers in the Florida domestic market are not “overwhelming,” Ms. Westcott said.
State Representative Jose Felix Diaz wanted to know why Miami-Dade County is considered riskier than other areas, like central Florida. Mr. Stevens said it is due to a high concentration of risk in one area.
He explained that rate making is largely based on computer modeling, in which hurricane modelers run their exposure data through a model to determine risk. The rate making process is based on actuarial science, modeling and law, Mr. Stevens said.
He explained that the Florida Commission on Hurricane Loss Projection Methodology has to approve every hurricane computer model before it can be used to calculate probabilities, but noted that most of the information used in the models is “secret.”
Representative Diaz then asked Ms. Westcott if she thought consumers are paying too much for insurance.
Ms. Westcott said she does not believe Citizens is receiving an adequate rate in certain areas, but also said she does not believe Floridians can afford what insurance should cost. She said some subsidy must be attached to the rate to make it more affordable.
“I do not believe we can bear the rate,” Ms. Westcott said.
Some discussion focused on the possibility of establishing a national windstorm pool. One speaker suggested consideration of a national windstorm pool in light of the extensive coverage reductions Citizens recently approved, such as the elimination of coverage for carports and pool enclosures.
Calling the idea “meritorious,” Mr. Stevens said the OIR has advocated for a national pool, but the idea has not been well-received. People in Montana, for example, don’t want to finance coverage for “rich people in beach houses” in Florida, he said.
Another topic of interest was the rising cost of litigation facing Citizens.
A slide presentation showed figures indicating Citizens has spent $2.4 billion in litigation costs in five years, and that its use of litigation specialists jumped from 15 in 2009 to 55 in 2012.
Ari Fraser of Fraser Property and Adjusting said the restrictions placed on public adjusters as a result of legislative action is a litigation cost driver.
“I feel basically Citizens decided to target whoever was filing the most claims,” Mr. Fraser said.
He said public adjusters end up referring Citizens policyholders to attorneys who, in turn, file suit.
Representative Artiles agreed litigation is a cost driver that needs to be fixed. He said Citizens’ lack of accountability also needs to be addressed.
One attendee complained about Citizens’ faulty inspection processes. Another speaker said the mitigation process has been “completely gutted,” causing homeowners to lose discounts that made their insurance premiums more bearable.
“People can’t afford it,” he said, adding that every time legislators pass another measure to aid Citizens, the result to homeowners is “devastating.”
“There are people who can’t afford their medicine. They are losing their homes,” he said.
Another homeowner said his Citizens’ premiums have jumped 40 percent, without the new exclusions. The man said he tried to buy private insurance but was told his house was too old. He said private companies seem to be choosing only the most lucrative policies.
A real estate broker told panelists that Citizens informed his 80-year-old client who was moving in with relatives that she must replace a roof that was not leaking or they would drop her policy. The woman could not afford a new roof, he said.
Another homeowner said he had homeowners insurance with State Farm for 20 years without a claim but was dropped. He was also a State Farm auto insurance client for 30 years. The man wondered how insurers like State Farm could be allowed to continue writing auto policies in Florida but forego wind policies.
A retired Fort Lauderdale insurance agent voiced support for depopulation but said the track record has been poor in regard to the private companies that have emerged as alternatives.
Bob White, a retired insurance business owner who lives in Weston, predicted disaster in Florida’s real estate market when interest rates rise if nothing is done to curtail the skyrocketing insurance costs.
“People aren’t going to be able to buy a house,” he said. He too said Citizens should sell windstorm-only policies and allow other insurers to handle regular homeowners’ policies.
Senator Fasano called residents comments “right on,” and urged Citizens President Gilway to find a way to treat all Citizens customers the same instead of based on where they live. Mr. Fasano urged consistency on everything from wind mitigation discounts to inspection reports, saying Citizens must consider what policyholders can truly afford.
“I ask for consistency and leniency for those 1.5 million policies that don’t have any other choice,” Senator Fasano said. He reiterated that private insurance companies aren’t coming back to areas like Pasco County and Miami-Dade County because risk is considered too high.
“We only have one choice. For anyone to suggest private companies will be coming back anytime soon . . . they are not coming back,” Senator Fasano said.
Ms. Westcott said she does not support a wind-only pool due to inherent risk. She voiced support for depopulation but had no specific solutions.
“We need to find ways to make this fair and affordable for people,” Ms. Westcott said. She said policyholders deserve a lot more than the “reactive measures” she has seen.
Mr. Neal of FAIR said his organization doesn’t get calls from many people who are happy.
“I think it is very, very clear that when public policy is made, it has to involve all the stakeholders,” Mr. Neal stated.
There are no easy answers, conceded Mr. Stevens.
“One person’s panacea is another person’s problem,” Mr. Stevens said.
Representative Artiles said Citizens has to become more transparent and more responsive, noting that three of his own public records requests are in waiting to be addressed.
“I humbly ask you, change Citizens’ culture,” Mr. Artiles said.
With no further business, the forum was adjourned.
A list of the round table panelists is provided below:
- Florida Senator Mike Fasano
- Florida Insurance Consumer Advocate Robin Westcott
- State Representative Ron Saunders
- Jay Neal, Executive Director, Florida Association for Insurance Reform
- Circuit Court Judge David Miller
- Circuit Court Judge Ana Panda
- David Bierman, General Counsel, Florida’s Insurance Appraisers and Umpires Association
- State Representative Jose Felix Diaz
- Monte Stevens, OIR Director of Government Affairs
- State Representative Mack Bernard
- State Representative Oscar Braynon II
- State Representative Frank Artiles
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