Lower Homeowners Rates, Procurement Policy, Legislative Changes on Florida Citizens Property Insurance June 25, 2014 Board Agenda

Jun 24, 2014

Nearly seven out of 10 Florida Citizens Property Insurance Corporation (“Citizens”) personal-lines policyholders could see premium reductions in 2015 under a slate of rate recommendations to be considered by Citizens Board of Governors (“Board”) during its scheduled meeting in Winter Haven, Florida tomorrow, June 25, 2014, from 9:00 a.m. to noon.

Citizens is required to recommend actuarially sound rates within the limits of the statutory “glide path,” which restricts rate increases to no more than 10 percent per year.  The Florida Office of Insurance Regulation uses these recommendations to set Citizens’ rates.

To view the Board agenda and meeting materials, click here.

Under the rates proposed for the Board’s approval tomorrow, homeowners’ policy premiums would decrease average of 3.2 percent, while mobile homeowners’ rates would go down by an average of 3.9 percent.  Citizens’ 2015 recommended rates will be submitted to the Florida Office of Insurance Regulation, which must approve them before they take effect.

Citizens has prepared a 2015 media kit to provide information about its 2015 rate filing.  Along with data on Citizens’ costs and projected rate need for 2015, the kit includes a section entitled “Citizens 2015 Rates Frequently Asked Questions.”

To view the document, click here.

Today, Florida Senate President Don Gaetz (R-Niceville) released the following statement about Citizens’ proposed rate reductions:

“The announcement today from Citizens Property Insurance Corporation that nearly 70 percent of personal-lines policyholders could see a rate reduction next year under the proposed rates is good news,” said President Gaetz.  “Coupled with last week’s vote by the Governor and Cabinet ending the 1.3 percent emergency Cat Fund assessments on property and casualty policies to pay for past hurricane losses, these reductions make it clear that Florida is moving in the right direction in addressing property insurance issues integral to our real estate market.  Citizens’ rate reductions for 2015 are the result of stronger reinsurance markets, 2011 legislation addressing sinkhole claims, the buildup of a significant surplus due to the recent lack of hurricane activity, and the Legislature’s continued efforts to reduce Citizens’ exposure.  Additionally, in 2013 the Legislature took steps to reduce the size of Citizens by moving policyholders back into the private market through an insurance clearinghouse.  Citizens announced earlier this year that it reduced to under one million the number of policies it insures and expects further reductions by the end of the year.

“While not all Citizens’ policyholders would see rate reductions, all Floridians will see a reduction due to the elimination of the emergency assessment.  There is still much to be done in this area, but these positive indications are evidence that we are taking the right steps toward improving Florida’s insurance market.”


New Florida Law Requires Substantial Revision to Citizens’ Procurement Protest Procedure

As part of its agenda, the Board will consider a repeal of Citizens’ procurement protest procedure that was approved in September 2013, along with the adoption of a proposed procedure pursuant to SB 1672 enacted this year.  The legislation substantially modifies the current process by moving the responsibility for these types of proceedings from Citizens’ Board to the Florida Division of Administrative Hearings (“DOAH”).   SB 1672 takes effect on July 1, 2014.

The following actions are proposed to implement the new law:

  • Citizens is now required to contract with DOAH to conduct procurement protest hearings to determine the merits of a protest and issue a recommended order.  The proposed contract will provide for a $147 hourly rate for DOAH’s administrative law judge services.
  • A Board Procurement Protest Procedure must be adopted to reflect the hearing of protests by DOAH.
  • The Board, acting as the agency head, must consider the recommended order of an administrative law judge in a public meeting and take final action on the recommended order and any filed exceptions by issuing a final order.


Also on Tomorrow’s Agenda . . .

Citizens’ Strategic Plan Approval

Approval of an official Citizens strategic plan, complete with a mission, vision and values statement, is part of the Board agenda this week.  The plan is intended to provide a business roadmap for Citizens’ work over the next several years, along with a means to measure specific outcomes.

Citizens’ goals set forth by the proposed strategic plan include:

  • Operation as an efficient residual market
  • Ensurance of a strong financial operating environment
  • Operate a streamlined, scalable and customer-focused organization
  • Protect the public interest and maintaining Citizens’ integrity

To view the strategic plan, click here.


Reponses to Real Estate Consolidation Proposal

Citizens is currently housed in nine buildings throughout three Florida cities, for a total of 363,863 square feet of leased office space.  In anticipation of the expiration of five of these current building leases (four in Jacksonville and one in Tallahassee), Citizens is seeking to consolidate operations and reduce its real estate footprint as the leases expire.

The overall projected savings resulting from this initiative is estimated at $13.4 million from 2014 through calendar year 2020.

Inasmuch as Florida law requires Citizens to issue a competitive solicitation for leased office space when no renewals remain, the State-run insurer is seeking to procure approximately 226,440 square feet of turn‐key office space for an initial 10‐year term with five two‐year renewal options.  Responses will be opened today.

To view Citizens’ Real Estate Strategy Executive Summary, click here.


Actuarial and Underwriting Intiatives

Citizens’ Actuarial and Underwriting Committee (“AU”) initiatives make up a significant portion of tomorrow’s Board agenda.   Among the items considered by the AU is a revised definition of “single building.”  The proposed Rule providing the revised definition would allow (for purposes of windstorm peril) the separation of buildings based specifically on building construction, wind resistive level of construction and means of connection to any adjacent building.

The proposed Rule also would amend construction classifications to remove fire references such as combustibility and burn time.  Citizens’ wind construction classifications are specifically defined to allow for the removal of the ISO Group I common fire classifications and a corresponding windstorm construction mapping table from Citizens’ Commercial Wind-Only Underwriting Manuals.  The new definitions are all policy-neutral, so no policies will change classification or incur premium changes as a result.

The AU explained that changes resulting from the “single building” definition revision would primarily benefit policyholders.  For example, some individually risk-rated (A-Rated) buildings may now be written using manual rates, releasing them from the generally higher rates used in A-rating.


Post-Session Product Changes

Legislation enacted in 2014 necessitates changes to multiple Citizens underwriting rules, systems and processes.  All changes are effective July 1, 2014.   They include:

  • Coastal Construction Control Line (Personal and Commercial lines)–Prior legislation mandated that any major structure for which a permit is applied on or after July 1, 2014 for new construction or substantial improvement is not eligible for Citizens’ coverage if the structure is seaward of the Coastal Construction Control line or is within the Coastal Barrier Resources System.  HB 1089 changed the effective date for permits from July 1, 2014 to July 1, 2015.
  • Adverse Action Based on Publicly Available Credit InformationSB 708 provides that, for residential property insurance, if a policy or contract has been in effect for more than 90 days, a claim filed by the insured cannot be denied based on credit information available in  public records.  After a policy or contract has been in effect for more than 90 days, the insurer may not cancel or terminate the policy or contract based on credit information available in public records.  Citizens does not use credit reports in underwriting and does not engage in post-claim underwriting based on credit reports.  To provide clarity to agents on this issue, specific language may be added to Citizens’ underwriting manuals.
  • Exemption of Re-inspection for Authorized Mitigation Inspectors–SB 1672 sets forth that a mitigation form provided to Citizens is not subject to independent verification or re-inspection–absent material changes to the structure–if the form was signed by an authorized mitigation inspector, and reviewed and verified by a quality assurance program approved by Citizens, then Citizens’ current practices will be updated to reflect any impact from this provision.
  • Commercial Residential Wind Transient Occupancy EligibilityHB 1089 mandates that commercial residential condominiums shall be deemed ineligible for Citizens’ coverage if 50 percent or more of the units are rented more than eight times in a calendar year for a rental agreement period of less than 30 days.  This legislation requires changes to Citizens’ Commercial Residential Wind-Only eligibility from the current transient standard of more than three rentals per year for periods less than 30 days or held out to the public as a place regularly rented out to guests for periods of less than 30 days, to the new standard described above.  The legislation applies only to commercial residential condominiums.
  • Commercial Residential Multi-Peril EligibilitySB 1672 requires changes to Citizens’ Coastal Account eligibility to state that Citizens shall cease offering new commercial residential policies providing multi-peril coverage for risks located in the wind-only eligible area and instead must continue to offer commercial residential wind-only policies.  This change applies only to new business and specifically states that Citizens may continue to renew existing policies in force as of July 1, 2014.
  • Clearinghouse Renewal Eligibility (Personal Lines)SB 1770 (enacted in 2013) provides that an applicant for Citizens coverage who was declared ineligible for coverage at renewal through Citizens’ Clearinghouse during the previous 36 months and who has been insured by an authorized insurer shall be subject to the renewal eligibility test (premium comparison) if Citizens determines that the authorized insurer increased the rate of the policy in excess of that which is allowed by the statutory “Glide Path.”
    • New Business and Renewal Business:  Period of Ineligibility (Personal and Commercial Residential Lines)–Florida law provides that a risk offered coverage from an authorized insurer that is comparable to coverage offered by Citizens is not eligible for coverage with Citizens if either of the following applies:
      • New business:  Premium is not more than 15 percent greater than the premium for a Citizens’ policy;
      • Renewals:  If the offer is equal to or less than Citizens’ renewal premium.

      To clarify the eligibility requirement, Citizens’ underwriting rules will be revised to indicate that the period of ineligibility is the length of the policy term for which comparable coverage is offered.


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