Florida’s Citizens Property Insurance Board Meeting Recap–June 24, 2015

Jun 26, 2015


Florida’s Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) worked rapidly through a packed agenda at its meeting in Orlando on June 24, 2015.  While Citizens’ 2016 rate filing garnered the most public attention, the Board also approved a slate of other action items, including a cyber-risk program, a catastrophe preparedness outreach campaign and a risk transfer and reinsurance plan for the coming year.

In his report, Citizens’ President and CEO Barry Gilway focused on explaining the reasoning behind creating a cybersecurity plan for the State-run insurer, which he said has recently added substantial operational resources that have yet to be discussed at length.  Especially in light of increased corporate hacking activity worldwide, protecting the confidential information dealt with by Citizens on a daily basis has become a critical need, to the point where Citizens is seeking to establish a security operations center of its own, he said.

In addition its plan to purchase cybersecurity insurance (an action item that was approved later in the meeting), Mr. Gilway listed some of the overall steps Citizens has taken to date to address cyber risk:

  • Hired a Director of Information Technology (“IT”) and Business Security to prepare the organization if a major breach should occur
  • Set up corporate access and identity management for all applications that contain restrictive or sensitive data
  • Effected vulnerability remediation within systems databases, platform security integration and privacy framework implementation
  • Hired an attorney/computer scientist as Citizens’ Privacy Officer
  • Strengthened risk management and organizational governance of information privacy security
  • Developed risk profile methodology to assess vendor-related cyber-risk
  • Hired highly credentialed IT security personnel

Mr. Gilway also briefly previewed Citizens’ catastrophe response public education campaign called “Citizens is Ready,” which was presented later in the meeting.  To view the presentation, click here.

In his report, Citizens’ Chief Legal Counsel Dan Sumner reviewed the success of the organization’s voluntary sinkhole repair program, the strategy behind which has sharply decreased sinkhole-related litigation by taking a firm stand on making repairs, rather than simply “writing a check.”

The external coordinating counsel process that Citizens has applied in sinkhole litigation since 2012 will be phased out by the end of 2015 and transitioned to in-house resources, Mr. Sumner explained. 

To view Citizens’ March 2015 sinkhole claims activity report, click here.

Meanwhile, Citizens is evaluating whether to deploy a similar voluntary repair program to address the burgeoning number of water damage claims and ensuing litigation in South Florida.

Citizens’ Chief Claims Officer Jay Adams cautioned on the complexity and diversity of water claims, as well as the difficulty of creating a single strategy to cover all of them.  It was explained that currently, no systemized recording exists to track the origins of these claims, so Citizens has started to build discreet water damage handling teams by assigning claims to specific adjusters, rather than using the typical managed claim model or full adjustment model in which randomized independent adjusters are deployed. 

A proposal on water damage claims handling and related litigation strategy will be brought to Citizens’ Claims Committee in September to determine how to proceed.

Mr. Sumner briefly discussed the Florida Supreme Court Order in the Citizens Property Insurance Corporation v. Perdido Sun Condominium case, its underlying issue of first-party bad faith, and Citizens’ unique role in its duty to policyholders as a non-profit.

He also reminded the Board that, at its last meeting, members had approved a Conflicts of Interest policy that has now been included in a revised and recently republished Citizens’ Ethics Policy.  

Also presented by Mr. Sumner, an action item for Citizens to purchase cyber risk insurance coverage was approved by the Board.  Beazley Group, the chosen insurer, was described as having been selected from among eight others because it maintains an in-house response team that can collaborate with Citizens and provide crisis management services. 

To view the cyber-insurance contract terms that were approved, click here

The Board also approved a Citizens Directors and Officers liability policy.

Reinsurance strategy for 2015 through 2016 was next on the agenda, with the attendant discussion prompting a suggestion to apply Citizens’ successful risk transfer program to both its Commercial Non-Residential Account, as well as its Personal Lines Account (“PLA”) for the following year. 

To view a summary of Citizens 2015-2016 Risk Transfer Program as approved by the Board, click here.

The successful marketing of Citizens’ Pre-Event Series 2015A Bonds also was reported.  Citizens had approximately $2.2 billion in orders for $1 billion in par amount after a lengthy pre-marketing campaign that resulted in ratings upgrades from two rating agencies (-A2 to A1 from Moody’s and A+ to AA-from Fitch).

Prior to the Board taking a mid-meeting break, members heard a quarterly financial analysis, approved an action item to hire a retirement plan financial advisor and reviewed several operations-related items. 

The Board also approved the purchase of IBM WebSphere Application Server processor licenses for software used to support and manage Citizens’ Web-based business system transaction processing, such as the ePAS policy and Thunderhead document management systems.

It was announced that the Jacksonville office consolidation will be completed on July 3.

Citizens’ Market Accountability Advisory Committee (“MAAC”) updated Board members on outgoing committee members Belinda Miller from the Florida Office of Insurance Regulation (“OIR”) and Corise Morrison from USAA Insurance.  Their replacements are OIR Deputy Commissioner of Property and Casualty David Altmaier and Gordon Jennings from Federated National.  David Newell of the Florida Association of Independent Agents was elected as MAAC Chairman.

In addition to an update on Citizens-related legislation, the MAAC reviewed Citizens’ Clearinghouse new business and renewal results and plans for 2015.  Results of 2014 depopulation and a summary of the Depopulation Workgroup meeting were also provided.

It was reported that an educational brochure outlining the coverages available for Citizens’ mobile home products has been developed to provide a simple explanation of the available Citizens coverages and applicable limits.  Beginning July 25, 2015, Citizens will include the educational brochure for one year with new and renewal mobile home policy issuance.  During that time, an electronic brochure will be available for download from Citizens’ Web site in both English and Spanish

To view the mobile home brochure, click here.

After the meeting break, Citizens’ Chief Risk Officer John Rollins presented the 2016 rate filing, explaining that Citizens’ total 1-in-100 year probable maximum loss in its Coastal, PLA and Commercial Lines Account (“CLA”) decreased from $24.52 billion in 2011 to $11.18 billion in 2015 (or by $13.34 billion).  Further, Citizens’ depopulation efforts in the Coastal Account, PLA and CLA have completely eliminated the need for any potential assessments for a 1-in-100 year event, which was $11.61 billion in 2011 for all three accounts, he related.

To view Citizens’ 2016 rate filing, which includes an executive summary, click here.

R-Street Institute State Director Christian Camera was on hand at the meeting to speak during the public comment portion of the rate presentation.  He reminded the Board that the Citizens “Glide Path” concept was introduced by his colleague, Eli Lehrer, during a James Madison Institute study. 

Mr. Camera noted that, if water damage claims are truly what is keeping South Florida Citizens policyholders from seeing rate decreases, then this concept should be clearly communicated to both lawmakers and constituents, especially if exploitation of Florida’s assignment of benefit laws is to blame.

Determining how much a Citizens rate decrease would be if water claims experience in South Florida were normal “would speak volumes,” Mr. Camera said.  If it is indeed true that one-third of every Citizens premium dollar goes to pay for water damage claims, then Citizens should take the initiative to determine how much statewide rates would be if Miami-Dade County were excluded from the average, he added.

Citizens’ Board approved the 2016 rates, which will now be sent to the OIR for approval in July.

Mr. Rollins then reviewed several changes to Citizens’ product lines that required final Board approval.  These include Insurance Service Office (“ISO”), as well as legislative changes described below, all of which the Board authorized:


Commercial Agreed Value

In order to better support the requirements of s. 627.701, F.S. and better align with private commercial property insurer programs, Citizens recommended an additional option for policyholders who prefer to eliminate the potential for a coinsurance penalty in the event of a covered loss.  This option to insure at agreed value will be offered at a rate higher than that for the existing coinsurance options and must be approved by underwriting.  When the agreed value option is selected, the coinsurance provision will not apply to the insured property.


Legislative and Florida Insurance Guaranty Association

Rate, rule, form, procedural and system changes necessary to support the provisions of HB 715 and HB 165


Contract Language Changes, Including ISO Coverage Forms

Updates to PLA contracts regarding exclusion for damage caused by constant or repeated seepage of water or condensation to read “over a period of weeks, months or years” rather than the current “over a period of time.” Language will be introduced to clarify that such damage that is hidden and unknown to all insureds is not subject to this exclusion.

  • The addition of a requirement to all multi-peril contracts that professional engineer or geologist sinkhole reports obtained by the policyholder must be provided to Citizens 60 days prior to the policyholder filing a suit for sinkhole loss
  • Update of personal lines contracts to incorporate more current ISO or industry language for liability coverages: 
  • Introduction of personal liability sublimit of $10,000 for damages, for which an insured is legally liable, because of statutorily imposed vicarious parental liability
  • Adoption of ISO language to provide an exception to the business use exclusion for when an insured performs volunteer activities with no compensation or receives less than $2,000 in a year; allowing limited liability and medical payment coverage
  • An increase of the reimbursement for reasonable expenses incurred by a policyholder in a suit Citizens defends from $50 to $250


After reviewing Citizens’ Internal Audit report, the Board considered the one of the remaining action items–a proposal to award contracts to multiple vendors for litigated and non-litigated claims adjusting services

Mr. Adams briefly recapped the history of this particular competitive solicitation, noting that it was originally issued on December 22, 2014, after which the intended award was protested by five of the responding vendors, which caused a delay in award of contracts.  After Citizens met in settlement conferences and referred the protests to the Florida Division of Administrative Hearings, all five vendors filed notices of voluntary withdrawal of their petitions, with the last notice having been filed on May 29, 2015. Thus, Citizens was now permitted to finalize the award, he said. 

Citizens’ Inspector General Bruce Meeks added that, although two related complaints had been received since then, that he saw no reason to delay a Board vote on these contracts.  The Board then approved them. 

After Board approval of several other consent agenda items, the meeting adjourned.

To view the complete meeting packet, click here.



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