|State Capital Bulletin
|November 19, 2013
||Florida Property Insurance Updates
||Donovan Brown, Counsel, State Government Relations
This State Capital Bulletin contains updates on Florida property insurance issues, including updates regarding: Citizens; the Insurance Consumer Advocate Homeowners’ Claims Bill; the Florida lawsuit against the NFIP; and reviews of other potential legislative issues for 2014.
| Citizens Clearinghouse Set to Go Live in 2014
As many as 18 private property insurance companies have signed up to participate in state-run Citizens Property Insurance Corporation’s clearinghouse to shop policies scheduled to come online January 2, 2014. Registered companies include: American Integrity; Ark Royal; Avatar; Bankers Insurance Group; Capitol Preferred; Federated National; Florida Peninsula; Heritage; Modern USA/American Traditions; Olympus Insurance; People’s Trust; Safe Harbor; Security First; Southern Fidelity/Southern Fidelity Property & Casualty; Southern Oak; Tower Hill Signature; and United Property & Casualty.
The clearinghouse is designed to shop prospective and renewal Citizens customers in the private market, part of the company’s plan to reduce its overall risk. Homeowners looking for coverage must accept offers from private companies if they are within 15 percent of the rate Citizens would offer. In a recent meeting, Citizens vice president of consumer and agent services Steve Bitar told the Actuarial & Underwriting Committee that customers could see bids to insure their home as soon as 30 seconds after submitting their information into the system. But, the clearinghouse will start slow. When it opens January 2, only four companies (Florida Peninsula, American Heritage, Safe Harbor and United Property & Casualty) will participate. Also, only prospective new customers looking for a standard homeowners’ policy (HO-3), will be shopped on the clearinghouse when it comes online. Other companies and policy types will be added to the marketplace in phases, with four new companies added at a time. Existing Citizens customers coming up for renewal will be shopped on the clearinghouse beginning in the second quarter of 2014. Citizens has stated that most companies already signed up should be actively participating in the clearinghouse and offering coverage by mid-2014. For reference, these background documents (hyperlinked) were provided to the Citizens’ Actuarial & Underwriting Committee:
Clearinghouse Product changes
Clearinghouse Update PowerPoint
Citizens Commercial Insurance Suite – Go Live
Personal Lines Underwriting Update
Loss Reports for Sinkhole
It was noted at the meeting that approximately 53 percent of the new business in Citizens continues to come from captive agents, with another sizeable amount from smaller independent agents with limited markets. The clearinghouse will provide these agents with additional private markets. Thomas Popko, Director of Personal Lines for Citizens, provide an update on Citizens depopulation efforts. To date, OIR identified about 900,000 policies for takeout during 2013. However, only 250,000 to 260,000 probably will actually be removed, according to Popko. Two factors account for the smaller number of policies ultimately taken out of Citizens – duplicative requests are made for some of the same policies; and Citizens policyholders have the ability to refuse to participate in a takeout. However, the ability to veto a takeout disappears when renewal policies began going through the Clearinghouse, so long as private companies’ offers are within 15 percent of the rate Citizens offers.
|Citizens Claims Committee Votes on Program to Conduct Minor Sinkhole Repairs
Members of the Citizens Claims Committee voted unanimously on Thursday, November 14, 2013 to send a proposal for a $50 million program to conduct minor sinkhole-related home repairs to its full board next month. Under the proposal, dubbed the Sinkhole Stabilization Managed Repair Program, Citizens will pay the participating vendors directly for the repairs, rather than its policyholders. The vendors must have been in business for at least five years, have sufficient insurance, have documented proof of experience in sinkhole repairs, provide a five year warranty for all repairs and have employees complete background checks to participate in the program. The contract with vendors would last three years, with the option of two one-year renewals. Policyholders with a sinkhole claim would be able to opt out of the program, but Citizens is looking at making the program mandatory. “The decision to participate in the Sinkhole MRP or select a stabilization contractor outside of the MRP network rests solely with the policyholder. During the operation of the voluntary Sinkhole Stabilization MRP, Citizens will pursue the development and implementation of a mandatory program for sinkhole stabilization services,” a Citizens document detailing the project states.
Sinkhole losses have dropped in recent years for Citizens after the Legislature passed SB 408 in 2011, which uncapped rates for sinkhole coverage, allowing Citizens to seek rates above the 10 percent cap on annual rate increases. Through the first nine months of 2011, Citizens had 3,468 sinkhole claims, compared to 1,007 for the same period in 2013. Even so, Citizens paid out $169 million more in sinkhole claims than it received in premiums in 2012.
Citizens president and CEO Barry Gilway said the maximum $50 million involved in the contract would come out of money that would otherwise go to pay claims, and shouldn’t be considered an additional expense.“ Are these additional dollars? The answer is no,” Gilway told the committee. “We’re just paying for the repairs rather than just writing them a check.”
Sinkhole Managed Repair Program – Summary: https://www.citizensfla.com/about/mDetails_boardmtgs.cfm?show=PDF&link=/bnc_meet/docs/531/02B_SH_MRP_20131114.pdf&event=531&when=Past
Key Performance Indicators: https://www.citizensfla.com/about/mDetails_boardmtgs.cfm?show=PDF&link=/bnc_meet/docs/531/02_KPI_20131114.pdf&event=531&when=Past
Independent Adjuster Requests for Proposal: https://www.citizensfla.com/about/mDetails_boardmtgs.cfm?show=PDF&link=/bnc_meet/docs/531/02A_IA_RFP_20131114.pdf&event=531&when=Past
All Claims Committee Background Documents: https://www.citizensfla.com/about/mDetails_boardmtgs.cfm?event=531&when=Past
|Citizens Launches Upgrade for Commercial Lines
Citizens this month continued its companywide modernization with the launch of a much anticipated computer upgrade to coordinate policy underwriting, claims and billing into a seamless and easy to use system. During the first week of November 2013 Citizens began routing all commercial policy operations through the Citizens Insurance Suite, a comprehensive software package that will replace a handful of legacy systems now responsible for new and renewal commercial business. Citizens handles about 39,000 commercial policies. The rollout is the second major release delivered as planned during 2013 as part of a larger effort to transition Citizens computer network to a centralized and more fully automated system that will ultimately handle all aspects of residential and commercial accounts. Prompted by the need to replace aging technology, the suite is allegedly both more agile and cost effective. “The Citizens Insurance Suite will dramatically improve efficiencies and provide better service to both agents and their policyholders,” said Citizens Chief of Systems and Operations Kelly Booten. “We’re pleased with the successful launch for commercial policies and look forward to expanding the system to all lines by the end of 2014.”
The suite will handle all commercial policies renewing after January 1, 2014 for multi-peril policies and February 1, 2014 for wind-only commercial customers. Citizens conducted meetings with agents and began online training in October 2013 in preparation for the November 2013 launch.
|Review of November 2013 Legislative Insurance Committee Meetings’ Focus on Citizens
The House and Senate Insurance Committees met during November 2013, with both reviewing Citizens issues. Christine Ashburn addressed the Florida House of Representatives Insurance and Banking Subcommittee and gave an overview of Citizens Property Insurance Corporation’s depopulation efforts. She also discussed the technical aspects of a takeout, from an insurer submitting a depopulation plan to the OIR to a policy actually being taken out of Citizens. Ms. Ashburn noted that Citizens is on track to have fewer than one million policies by January 2014 and said that there has been a reduction in new business. She also highlighted the type of risk Citizens would likely cover if it were a true insurer of last resort. Ms. Ashburn reviewed implementation of Citizens’ new Clearinghouse, in which 18 insurers are participating. Four carriers are expected to “go live” during mid-December 2013 as a means of testing the new system (see above). To view the meeting packet and presentations, click here.
The Senate Banking and Insurance Committee, under the leadership of Chairman David Simmons, is focusing on a Citizens bill during the next legislative session that will focus on the elimination of wind-only policies and subsidized rates for Citizens policyholders from out of state or out of the country. Simmons emphasized these two issues during the Senate Banking and Insurance pre-session committee meeting. There also was a resumption of discussions concerning the need to reduce Citizens huge exposure in commercial/residential lines – primarily buildings owned by condominium associations. The legislation Chairman Simmons introduced initially during the 2013 legislative session increased Citizens rates, tightened eligibility and addressed a couple of dozen other major areas in an initiative to restore the program to a true residual market. What the Legislature finally passed was much narrower – creating the Clearinghouse Program taking effect January 1, 2014 and setting up a Citizens inspector general. In an effort to further reduce the size and scope of Citizens, Simmons insisted that Citizens should determine precisely which of its policyholders live outside of Florida and outside of the U.S. and receive non-actuarially sound premiums. Simmons mentioned 180,000 policyholders who are or may be non-Florida residents and said they are paying 13 to 19 percent less than they should be. Simmons suggested Citizens should find out for certain, through checking Homestead Exemption records or requiring the place of residency to be stated under oath when renewals are processed. Many of Citizens’ multi-peril policyholders in the Personal Lines Account are paying at or near actuarially sound rates, Simmons stated. The most severe inadequate rates and rate subsidization are occurring in the wind-only Coastal Account.
|OIR Issues a Primary Flood Option Informational Memorandum
As previously reported, the Florida Office of Insurance Regulation (“OIR”) issued Informational Memorandum OIR-13-03M (“Memorandum”), to insurers exploring the feasibility of writing primary flood insurance in Florida. Section 239 of the federal Biggert-Waters Flood Insurance Reform and Modernization Act of 2012 provides that private flood insurance sold by licensed insurers may satisfy requirements for flood coverage established by Fannie Mae or Freddie Mac. As a result, various insurers have expressed interest in offering coverage in Florida. The five-page OIR Memorandum, not intended to be comprehensive in scope, contains information and suggestions for insurers considering entering the Florida market on required demonstration of financial capacity and options for developing rates and forms for primary flood coverage. It reflects the OIR’s initial review of federal and state legal requirements that might apply to the issuance of private flood coverage. The Memorandum is attached in PDF format.
In addition, while ongoing interest remains from a number of carriers concerning the ability to write primary flood coverage in Florida, Florida Senator Jeff Brandes has signaled his intent to move forward legislation easing barriers to companies interested in providing such coverage. His press release regarding this issue follows:
SENATOR JEFF BRANDES TO PROPOSE PRIVATE FLOOD INSURANCE OPTION
Bill will give consumers more flexibility over their flood insurance policies
St. Petersburg, FL- Today Senator Jeff Brandes (R-St. Petersburg) announced that he is drafting comprehensive legislation that will allow private insurers to offer alternatives to the National Flood Insurance Program (NFIP) in Florida. Citing a recent congressional proposal to delay the implementation of the Biggert-Waters Act by four years, the Brandes legislation will allow insurers to utilize that delay to establish additional, more affordable choices for consumers.
“I applaud the efforts underway in Congress to delay the implementation of the Biggert-Waters Act, but Washington is only kicking the can down the road,” stated Senator Brandes. “The disastrous impacts from NFIP rate increases are still looming on the horizon, and our residents deserve to have choices when it comes to flood insurance. I believe such freedom and flexibility will help reduce some of the financial burdens imposed by the unfair rate increases in the NFIP.”
The Brandes proposal will establish new governing statutes in the residential surplus lines insurance marketplace, allowing private insurers to provide more options for flood insurance coverage. Insurers will be given flexible rate territory definitions to spread risk across the state. Consumers will be given broad flexibility to make choices regarding their deductibles, varying types of additional coverage, and the hallmark of the proposal—the ability to purchase minimal flood insurance coverage for the amount of the mortgage or maximum coverage for full replacement cost.
Senator Brandes has been working with the Senate Banking and Insurance Committee, the Office of Insurance Regulation, and private sector stakeholders on the proposed legislation which he intends to file by the end of 2013. If the legislation is passed and approved by the Governor, Floridians will be able to purchase affordable and tailored private-market flood insurance before the rate increases in the Biggert-Waters Act take effect again in four years.
|CFO Amends and Republishes Draft ICA Legislation on Homeowners’ Claims Issues
Logan McFadden, Chief Financial Officer Jeff Atwater’s chief legislative aide, reissued draft legislation developed by former Insurance Consumer Advocate Robin Westcott’s Homeowners Insurance Bill of Rights Working Group. Due to extensive meetings with industry, a scaled back package of recommendations which will serve as the basis for the Department of Financial Services (DFS) recommendations to the Legislature for the 2014 session has emerged. The revised package does not include proposed new restrictions on Examinations Under Oath, restoration of the insurer report card program which DFS was unable to successfully implement when it was on the books several years ago, and other controversial recommendations. The draft legislation is attached for your review and comment. Please provide any insights or commentary directly to Donovan Brown at email@example.com.
|Florida Officials Back Mississippi Lawsuit Against NFIP
Florida endorsed a Mississippi federal lawsuit during the week of November 11, 2013, challenging the Federal Emergency Management Administration’s decision to raise rates in the National Flood Insurance Program. Governor Rick Scott, Attorney General Pam Bondi and Chief Financial Officer Jeff Atwater had announced on October 10, 2013 that they planned to file an amicus brief in the U.S. District Court for southern Mississippi. The brief, announced by Scott and Bondi during the week of November 11, 2013, made four main arguments:
- That FEMA should have to complete studies required by a 2012 flood insurance reform act before setting new rates;
- That FEMA has implemented the National Flood Insurance Program, as amended in 2012, in an “arbitrary and capricious” manner;
- That new premiums fail to consider affordability; and
- That FEMA did not use “accepted actuarial principles” and consider actual risk, when setting new rates.
“FEMA, under the guise of expediency, may not ignore the express mandate of Congress, which requires the completion of the requisite studies and consideration of affordability. FEMA may only act within their statutory authority; to do otherwise ignores the separation of powers, a cornerstone of our democracy,” said the state’s brief. “FEMA’s failure to delay implementation of the rate increases is unacceptable. FEMA is proceeding arbitrarily without first obtaining all the requisite studies and information, contrary to congressional intent and the best interest of the citizens of the states of Florida, Alabama, and Mississippi who have been harmed by onerous rate increases,” it said. “This court should compel FEMA to take the economic impact to families and homeowners seriously, as so many members of Congress have pleaded in the weeks leading up to the implementation of the premium rate increases.”
Governor Scott called for President Obama to intervene and make FEMA curb its new flood insurance rates. “We are supporting Mississippi in their lawsuit against FEMA because the NFIP rate hike will not only hurt Florida families but will devastate our real estate market,” Scott said in a prepared statement. Attorney General Bondi said, “Floridians are facing outrageous, unaffordable flood insurance premiums, and we support all efforts to protect policyholders from these devastating insurance rate increases.”
On November 19, 2013, the Tampa Bay Times reported that a bipartisan group of senators said they will try to amend a defense bill with a proposal to stop the increases in flood insurance rates affecting Florida and other states. Calling the National Defense Authorization Act “must-pass” legislation, Florida Senator Bill Nelson said, “We need to get this legislation amended onto it and get it signed into law.” Sponsors of the amending provision include Senator Nelson, Senator Mary L. Landrieu (D-LA), Senator Johnny Isakson (R-GA), Senator Robert Menendez (D-NJ), Senator David Vitter (R-LA), Senator Heidi Heitkamp (D-ND), Senator Thad Cochran (R-MS), Senator Charles Schumer (D-NY), Senator Kirsten Gillibrand, (D-NY), Senator Elizabeth Warren (D-MA), Senator Mark Begich (D-AK) and Senator Joe Manchin (D-W.VA).
|Demotech Offers Opinion to Florida CFO Jeff Atwater on Reinsurance Cost Savings Question
Suggesting that the cost of repairs relating to damage claims has contributed to the steady increase in Florida insurance rates, Demotech President Joe Petrelli offered his “unsolicited response” to the second of two recent letters from Florida Chief Financial Officer Jeff Atwater to Florida Insurance Commissioner Kevin McCarty. In the letters, CFO Atwater questioned why property insurers are not passing along their reinsurance cost savings to Florida policyholders. In his letter to CFO Atwater, dated November 7, 2013, Mr. Petrelli states that Demotech’s position on reinsurance is ” . . . likely to remain that consumers benefit when their insurers purchase more vertical and horizontal protection annually as opposed to the same amount of protection or less.”
Demotech’s letter is attached for review.
|Insurers Must Give Commercial, Residential Property First-Party Claimants Notice of Right to Participate In Florida Mediation Program, Proposed Rules Say
The Florida Department of Financial Services Division of Consumer Services has advised that proposed amendments to Rule 69J-166.002, “Mediation of Commercial Residential Property Insurance Claims” and Rule69J-166.031, “Mediation of Residential Property Insurance Claims,” would update subparagraphs (4)(a)1. of both Rules to conform with changes made by Chapter 2012-151, Laws of Florida, and the opinion of the Third District Court of Appeal in Fernando Subirats v. Fidelity National Property, 106 So. 3d 997 (Fla. 3rd DCA 2013).
To view the Notice of Proposed Rule, click here.
If requested by November 28, 2013, a hearing will be scheduled for December 3, 2013 in Tallahassee (Room 142, Larson Building, 200 E. Gaines St.).
The revisions provide that an insurer must give a policyholder notice of his or her right to participate in the appropriate mediation program prescribed by the Rules at the time the policyholder files a first-party claim. The proposed amendments also substitute the word “policyholder” for “insured” in the Rules. Both Rule 69J-166.002 and 69J-166.031 implement Section 627.7015, F.S. The mediation programs (“programs”) they establish are prompted by what has been determined to be a critical need for effective, fair and timely handling of both commercial residential and residential property claims.
The programs are available to all first-party claimants and insurers prior to commencing the appraisal process set forth in their policies or commencing litigation. They are also available to litigants referred to the DFS from Circuit or County court. For claims that have not previously been mediated under any DFS mediation program, the procedures described in these Rules are available to all commercial residential or residential property claims for property located in the State of Florida. These Rules do not apply to commercial insurance, private passenger motor vehicle insurance, or to liability coverage contained in property insurance policies, nor do they apply to policies issued under the National Flood Insurance Program. Before resorting to these procedures, policyholders and insurers are encouraged to resolve claims as quickly and fairly as possible.
The Florida House Insurance and Banking Subcommittee will not meet for December committee week. However, the Florida Senate Banking and Insurance Committee will meet on Tuesday, December 10. The agenda has not yet been published.