Florida’s Citizens Property Insurance Actuarial and Underwriting Committee Reviews, Approves Various Regulatory Modifications at June 25, 2013 Meeting
Jun 26, 2013
After Chairman John Rollins opened Citizens’ Actuarial and Underwriting Committee yesterday, June 25, 2013, Citizens’ Director of Product Development Karen Holt addressed a legislatively mandated modification to Citizens’ current policyholder assessment notice, explaining that the following language must be added to the notice:
I UNDERSTAND THAT I CAN AVOID THE CITIZENS POLICYHOLDER SURCHARGE, WHICH COULD BE AS HIGH AS 45% OF MY PREMIUM, BY OBTAINING COVERAGE FROM A PRIVATE MARKET INSURER AND THAT TO BE ELIGIBLE FOR COVERAGE BY CITIZENS, I MUST FIRST TRY TO OBTAIN PRIVATE MARKET COVERAGE BEFORE APPLYING FOR OR RENEWING COVERAGE WITH CITIZENS.I UNDERSTAND THAT PRIVATE MARKET RATES ARE REGULATED AND APPROVED BY THE STATE.
The Committee approved and recommended that the Board of Governors approve the above change to the assessment notice.
Sinkhole Rule Revisions
Based on direction provided by Citizens’ Board of Governors (“Board”) in March 2013, Citizens’ staff has been developing new underwriting rules that expand eligibility for properties that have experienced a sinkhole loss.
On May 15, 2013, the Florida Office of Insurance Regulation (“OIR”) approved an exception for Citizens to provide coverage under an HO-3 policy form for properties that have experienced a sinkhole loss resulting in a full policy limit claim payment. The exception specifies that property that suffered a full policy limit sinkhole loss would be eligible for an HO-3 All-Other Perils (“AOP”) policy form if the sinkhole loss had been fully remediated in accordance with the insurer’s professional engineer’s recommendations.
Citizens’ staff also has been working on a filing with OIR to implement a rule change approved by the Board that would allow the issuance of a DP-1 policy on properties that experienced a total or partial sinkhole claim, but used alternate repair methods that were not in accordance with the insurer’s professional engineer’s recommendations. The following issues have been raised with this proposed change:
- Concerns expressed by legislators and realtors suggest the revised rules do not go far enough and could adversely affect the Florida real estate market.
- There is no significant data suggesting properties with prior sinkhole losses that were repaired with alternate repair methods have any increased likelihood of future AOP losses.
- It is believed that some sinkhole losses prior to the enactment of SB 408 were not, in fact, sinkhole losses, but the result of normal structural settling or inappropriate claim settlement practices.
Based on feedback, Citizens’ staff recommended and the Committee adopted additional changes to the Sinkhole Eligibility Rules. Those changes include:
1. Provision of an HO-3 and other available policy forms on properties that experienced a total or partial sinkhole loss but utilized alternate repair methods to repair the damage. While eligible for an HO3, these risks would not be eligible for Sinkhole Loss Coverage. These properties would be subject to the same inspection and documentation requirements as properties where the sinkhole was fully remediated to ensure:
- The property has been stabilized;
- No existing damage; and
- No evidence of current sinkhole activity
2. Provide a DP-1 (without Sinkhole loss Coverage) on properties with acknowledged prior sinkhole claim activity, but no documentation of the repairs.
Sinkhole Capping Modification
In order to comply with Florida’s statutory 10 percent “Glide Path” limitation, Citizens’ Personal Lines programs apply complex “capping logic” to renewal policies.
Citizens’ staff recently learned that the complexity of this methodology resulted in an unintended consequence, causing policies that remove sinkhole premium to be charged a lower premium than intended. It was determined that no Board action was required, therefore the following items will be addressed to correct this issue:
- Corrected capping logic will be filed with the OIR for application to Citizens’ 2013/2014 programs
- Evaluation of current policies that were issued incorrectly and absorption of any premium due resulting from subsequent corrections
- Notification to policyholders that their policy has been corrected, but that Citizens will honor the original premium.
The Committee was provided with a product development update by Ms. Holt. At the March 22, 2013 Board meeting, Citizens’ staff was directed to offer coverage under a Commercial Non-Residential Wind policy for single family homes in wind-eligible territories for under $1 million. This product became available on June 1, 2013.
Further, at the request of the mobile home community, the Board directed Citizens’ staff during the March meeting to offer an optional buyback for screened enclosures and attached structures. Rates were to be established at an actuarially adequate rate.
Since that time, HB 573 was enacted by Florida Governor Rick Scott. The new law requires that Citizens offer a policy that includes coverage for various attached structures. This required a change in approach to include these structures under Coverage A, rather than offering an optional buyback. Subsequently, corresponding filings have been submitted and approved, resulting in expanded coverage to be provided to all in-force mobile home policies as of June 13, 2013
Additionally, HB 573 requires that Citizens provide coverage for mobile homes valued at $3,000 and higher. This change also has been filed and approved, with resulting lower coverage amounts to be available August 1, 2013.
In March, several issues had been presented to the Board at the request of Florida’s Insurance Consumer Advocate. In response, the Board directed staff to modify existing rules and forms as follows:
- Shutter Deployment Incentive: The existing shutter deployment incentive was modified to apply only to hurricanes and only in areas of Florida that are impacted by a relevant hurricane watch or warning.
- Wind Short Rate Cancellation: Introduction of additional exceptions for short rate cancellations when the insured has paid the mortgage in full and when there has been wind coverage in force for at least 3 years.
These have been completed and the modified terms will be applied immediately to impacted in-force policies.
Citizens’ Actuary Brian Donovan and outgoing CFO Sharon Binnun updated the Committee on Citizens’ 2014 rate recommendations. The overall indicated rate need is 28 percent across all lines of business and based upon Citizens’ calculated risk load. This translates to an indicated premium increase of $724 million. After applying the 10 percent policy level caps, the proposed rate change results in a rate increase of 8.8 percent. This translates to a $226 million premium increase.
The overall indicated rate need across all lines of business and based upon the risk load promulgated by the OIR is 19.6 percent. This translates to an indicated premium increase of $505 million. After applying the 10 percent policy level caps, the proposed rate change results in a rate increase of 7 percent, translating to a $178 million premium increase.
Due to the significant changes resulting from Senate Bill 408 in 2011, Citizens historical loss experience may not be reflective of future experience as it pertains to developing sinkhole rates. Instead the projected sinkhole rates are based on historical losses reduced by the estimated effect of SB 408. A comprehensive actuarial analysis, which included a review of results from engineering and geotechnical testing, projected that the aggregate impact due to specific provisions of SB 408 would reduce Citizens’ expected incurred sinkhole losses and allocated loss adjustment expenses by 54.7 percent for policy year 2013. Taking this actuarial study into consideration for HO-3, Citizens developed an actuarially sound statewide rate indication for sinkhole coverage of 200 percent.
Filing OIR’s actuarial indications for the 2014 rate increase was approved by the Committee, along with including Citizens’ calculated risk load for informational purposes only.
To view the meeting materials, click here.
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