Executives of Florida’s state-backed insurer defended a proposed statewide average 11.2 percent increase in homeowners rates as regulators, consumer advocates and other officials questioned the need for the increases, citing a projected reduction in sinkhole claims, the use of computer models, and alleged mismanagement of mitigation credits and travel expenses.
Citizens Property Insurance Corp. at a public hearing in Miami presented several rate filings that if approved will raise premiums for homeowners, renters, condominium owners, mobile home owners, and on commercial properties.
Citizens President Barry Gilway told regulators that as they consider the homeowners filings, they should be aware that the insurer is continuing to grow at a steady clip even as it attempts to shed policies in favor of the private sector.
He said the insurer is receiving 8,000 policies a week at an annual monthly increase of 30,000 policies. So far, private insurers have removed 84,000 policies this year, a number that is slated to grow since regulators have just approved four companies to take out up to 150,000.
Citizens is also considering a program to loan $350 million to private companies in hopes they will remove up to 300,000 policies sometime next year.
But for the time being, said Gilway, Citizens 1.46 million member policyholder roll will continue to grow.
“The math means that we will write 300,000 policies this year even with the substantial take outs this year,” Gilway said.
Gilway said that the insurer had adhered to the statutory “glidepath” limiting annual increases to 10 percent, plus any surcharges. However, he said that has resulted in almost no change in policyholder premiums since the glidepath was implemented in 2009 even as its exposure in the personal lines account has increased from $122 billion to over $240 billion. As a result, he said, the insurer remains a low priced option in many areas around the state.
“Overall the rates are falling behind private carriers and the gap is widening,” he said.
Florida Insurance Consumer Advocate Robin Westcott, however, maintained the glidepath is working and that Citizens rates are closer to being actuarially sound than is generally thought.
For example, she said, that out of Citizens’ 150 rating territories, 20 percent are already at actuarially justifiable levels and that number will increase in the next several years.
“Consumers need to know that the dynamic is changing,” she said. “In the next two to three years will we see many consumers come into the personal lines account at a sound rate.”
The sinkhole portion of the insurer’s filing came in for special attention given reforms passed in 2011 that narrowed the definition of a sinkhole while requiring a professional appraisal of the damage. Insurance Services Office (ISO) estimated those changes could result in sinkhole savings of as high as 54.7 next year.
Citizens Chief Financial Officer Sharon Binnun said the sinkhole reforms are having an impact, although the insurer still faces a substantial rate need to pay claims. In 2011, Citizens collected $51 million in sinkhole premiums, but received $445 million in claims. With the reforms, however, she said sinkhole rates are expected to go down by half.
Even so, that represents substantial increases in the most sinkhole prone areas of the state. In that Tampa Bay area, Citizens is proposing to cap increase at 50 percent. Even so, that means homeowners could see their sinkhole premiums increase to roughly $2,000 annually.
Westcott criticized the increases, pointing out that Citizens has received far fewer claims this year compared to previous years. She also said that the reduction in claims will lead to lower expenses to adjust and defend claims.
“Citizens is going to pay a lot less in claims in the future and regulators need to take that into account,” said Westcott.
Regulators also questioned Citizens’ choice of computer model to estimate its potential catastrophic losses. As required by law, the insurer is required to consider a state model developed by Florida’s Commission on Hurricane Loss Projection Methodology. However, it can also utilize another model developed by a private modeling company. The Citizens board conducted a bidding process and eventually hired the private modeling firm, AIR Worldwide.
When it came to the 2013 homeowners, rentals, and condominium owners filing, Citizens chose to use the AIR model, which produced higher loss estimates than the public model.
Binnun said the insurer has been consistent in using the model so the loss estimates can be compared from year¬¬-to-year instead of from model to model. She also said the higher loss estimates resulted in the insurer’s rates being more competitive.
Insurance Commissioner Kevin McCarty, however, questioned the actuarial justification for choosing between the two models, noting that Citizens used the public model when it came to commercial policies because it yielded the highest loss estimates.
“It looks like you used the model based on the highest indication and that point needs to be made,” said McCarty.
Regulators were not the only ones lined-up to criticize Citizens, which has confronted public criticism on matters including its mitigation inspection program, broad reductions in coverage, and the recent disclosure of expenses by top executives.
Rep. Mike Fasano (D-New Port Richey), who has long been a critic of Citizens, said the mitigation inspection program is just one example of the insurer making an end run around the ratemaking process by unilaterally instituting the changes to increase premiums.
According to Citizens documents, as of July 31, the insurer has conducted more than 247,000 home inspections, out of which 74 percent result in an average increase of $600. All told, those inspections have increased the insurer’s premiums by $154 million.
“They have already gotten a rate increase and they got it without your permission,” said Fasano.