Citizen’s Approach… Painful & Unnecessary!

Yesterday’s public workshop and board meeting must have been painful for Citizens new president to watch.

Barry Gilway’s new board holds a public meeting in Miami, in the heart of its policyholder base.  Staff and board members talk to the media and hundreds of consumers in a language they don’t understand.  Then, they politely listen while the public, consumer advocates and some lawmakers make presentations about things they don’t understand.

As to whether this constitutes effective PR the following media accounts are testament to it being nothing short of a disaster:

Workshop turns into public outcry against Citizens

Citizens Property Insurance Slammed

Citizens Insurance Panel Approves Higher Deductibles, Less Coverage

Some Private Insurers Already Cost Less Than Citizens

Citizens looks at Rates, draws criticism from South Florida Polls

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AND…IT’S UNNECESSARY!

Don’t get me wrong.  The reasons for holding a publicized board meeting in south Florida are sound, but…   the pain and frenzy associated with it are necessitated by the inordinately convoluted approach to solving the problem of Citizens size.

Here’s the equation–coastal consumers  want to pay lower premiums.  Inland consumers want to pay lower assessments. Lawmakers side with their constituents.  Consumer advocates oppose any rate increases or coverage reductions of any kind even at the expense of the majority who pay the subsidies.

That’s it!  Not so sweet, perhaps, but it’s fairly simple!

As for depopulation, perhaps a place where Barry Gilway, could start is exploring why Citizens takes so many painful public steps when it isn’t necessary–there are so many more palatable, consumer friendly and yes,  less political, ways to go about it.

Specifically:

  1. Is it really necessary to isolate dozens of finite coverage reductions, one at a time,  research and debate each one in numerous public meetings then suffer countless attacks from the media, consumer groups and politicians each time you do?
  2. Does depopulation require that you punish consumers who are forced to stay in Citizens and who would have to remain there even if coverage was reduced to the minimum required by financial institutions?
  3. While it would be helpful if it didn’t, is it really necessary to continue to debate whether or not the 10% cap applies to new applications or not?

Frustration over Citizens path to sanity flows mostly from the fact that the answer to each of these questions is…. “NO!”  

Here’s why.

First, instead of cutting off small pieces of the dogs tail with multiple coverage and underwriting   reductions, strung out over many months, Citizens should exercise the specific statutory authority given it by lawmakers in Fs 627.351(6) (and also in its plan of operation) and seek approval for a completely new coverage form that is non-competitive with private carriers.

While the statutes allow Citizens to sell an HO-8 (See NOTE#1 Below) or another form with reduced coverages,   let’s forget about the name of the form or the coverages it might provide for now.   Citizens should develop a reduced coverage form that meets the requirements of the secondary mortgage market, call it the Citizens Homeowners Policy and file it with the OIR. If the OIR doesn’t approve portions of the form, make the necessary changes and refile.  It could be done by a sub-committee with one board debate on the form itself and the OIR would decide what needed to be changed after that.

Now…before you say that’s easier said than done, don’t forget, the OIR has already approved the HO-8 for use by dozens of carriers including the largest homeowners writer in Florida which has not only sold over 30,000 in southeast Florida alone, but offered bonuses to agents in order to do so.  How difficult would it be to incorporate some of the current proposed or recently implemented reductions into a “me too” filing using this already approved coverage form?  In essence, one slice of the dogs tail!

As to question number two above, there were several presenters, including one lawmaker and one board member who touched on why the answer is “NO, you don’t have to punish those who have no other choice but Citizens”.  Each speaker acknowledged that Citizens needs to depopulate, but…with the caveat that those who can’t leave Citizens have to be protected.

Lawmakers foresaw  this and placed in the statutes a provision that allows Citizens to address different areas of the state based on private market availability.  It’s been referred to as “decertification” but, that’s a misnomer.  The statute allows Citizens to develop different eligibility requirements and operational procedures based on whether the private market is competitive and stable. It can do this by zip code, county, or entire areas.  (See NOTE#2 below)

I’ve talked to every consumer group and they all agree this should at least be looked into.  I’ve talked to top level executives at the OIR. They agree it should be looked into. Based on the comments at this last public hearing, maybe President Gilway can cause Citizens to formally pursue the concept and bring it to a board vote.

Finally, question number three has already been answered in a previous blog titled; Citizens Rates–One Good Punt Deserves Another!”.  The idea, again, is simple.  If, indeed, it would be helpful to reduce the influx of new applications by raising rates on new policies beyond the 10% glide path, then… remove the cap for new applicants, but…file for a glide path approach to reaching actuarial soundness, and… this is the kicker… make any removal or gradual implementation of an increase effective after the next legislative session!

That way, if lawmakers disagree they can pass whatever bill they want in order to keep the proposal from being implemented or to clarify what they originally intended with respect to the cap.  The Citizens board will have effectively handed the issue back to the legislature which had punted it to the Citizens board in the first place.

That’s it! Answer three questions to see if a new approach is workable.

Based on media and consumer reactions to the current approach, what’s to lose?

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NOTE #1: Citizens was required years ago to file an HO-8 form. This year the omnibus insurance bill [Fs-627.351(6)(c)g] required Citizens to offer an HO-8 policy to its policyholders effective January 1, 2013.  The statute states “This policy must pay for dwelling repair using common construction materials and methods, rather than replacement cost.” The form is currently under development.

NOTE #2: I’ve written several blogs that explain or touch on the idea of Targeted Depopulation Initiatives; sometimes called decertification. You can read these and find the statutory references and language by typing the word “decertification” into the search bar on the home page.

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