CITIZENS COVERAGE…Cadillacs & KIAs?

In my last post I opined that Citizens could (should) employ a more consumer friendly and politically expedient approach to reducing its exposure and policy count.

I was flattered by comments on the cogency of my suggestions; especially regarding  the three questions I used to demonstrate it was imminently possible for Citizens to do as I suggested.

Other comments, however, reflected a misunderstanding of one of the points I was trying to make.

I suggested that, instead of cutting off small pieces of the dogs tail with an endless stream of small, sometimes inconsequential, coverage reductions, Citizens board could develop one limited-coverage form and submit it to the OIR for approval.  I also said that such a form could be a “me too” filing using existing, OIR approved, HO-8’s commonly sold throughout the state by numerous carriers.

What I did not intend to imply was that I thought an HO-8 was either the  only or the best way to go about it.  It was just an example.

Here is both a better explanation of what I meant and my opinion on what is the best way to reduce coverage for Citizens. _________________________________________________________________________

During a recent legislative committee hearing on how to reduce Citizens policy count one lawmaker said Citizens needs to “…stop selling a “Cadillac” policy.”  It was quickly explained to him that Citizen’s policy isn’t a Cadillac…”It’s an HO-3, the same policy as the private market.” 

Most in the room missed the subtlety…

The HO-3 policy sold by the private market is designed to attract customers therefore, whether you call it a Cadillac or a KIA, Citizens shouldn’t be selling it!

My previous blog referenced the HO-8 because insurance-philes know it to be a restrictive ISO form originally intended for inner-city dwellings or by use in residual markets and fair plans.  In other words,  it would be less competitive than the standard HO-3’s sold by private carriers, unless, of course, its actual language was modified to be equivalent to that of the private market’s HO-3.

Since many of you expressed an interest and, for what it’s worth, here’s what I think should be done.

Citizens should provide coverage that is required by the secondary mortgage market which would comply with all mortgages while still being unattractive to those with options other than Citizens.

I would not use an HO-8 to do this.  And, I certainly would not increase policy administration costs by offering multiple forms with varying levels of coverage and different underwriting applications and/or pricing.

Instead, I believe Citizens should offer only one residential policy and call it the Citizens Homeowners Policy (CHP). It should be roughly the equivalent of a Dwelling Policy, DP-1 or 2 or a scaled back DP- 3, whichever provides the least coverage while still meeting mortgage requirements.  A DP-2 provides replacement cost on the building, which is probably necessary for most mortgages.

The CHP should be available for either owner or non-owner occupied dwellings. It’s items of coverage and the applicable limits of each, subject to established caps, amount categories and underwriting, should be determined, as many carriers do today, with four simple questions:

I. Occupancy, check one:   Owner____   Tenant_____

II. Insert Coverage A building amount: $___________

II. Insert Coverage C contents amount: $___________

III. $100,000 Liability? Yes___ No____

That’s it! One flexible coverage form and one set of questions determining levels of coverage and occupancy. The form itself would address the differences between landlords and tenants depending on which block was checked and which options were chosen.

Eligibility, miscellaneous  internal limits and other essentials would all be handled with the current application and necessary accompanying materials and the helpful guidance of a qualified producer of the corporation. And, as long as the policyholder had no other options but Citizens, there would be little or no E&O exposure for the agent, certainly not as much as the current approach, (See NOTE#1 below) and little or no reason to argue that, in the absence of legislation, Citizens isn’t doing what it can to depopulate.

Now before you begin thinking of all the reasons why this won’t work you should first…

  • Imagine the internal savings to Citizens if things were this simple.
  • Imagine the reduction in exposure that might result as policyholders voluntarily reduce their limits to what they feel they could afford; including eliminating contents and liability if they choose.
  • Take any problems you find with this approach and compare it to the current policy processing and coverage matrix to see which is worse, and finally…
  • Imagine the reception this approach would receive compared to the current ad-nauseam nit-picking of coverages and underwriting requirements that, in the end, won’t produce the desired impact on policy count or exposure.

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NOTE #1: Florida statutes, Fs-627-351 provides exemptions from liability for producers of the corporation, including immunity from suits resulting from the insolvency of any takeout carrier.  However, immunity most relevant to an agent securing coverage is provided by the following: There shall be no liability on the part of, and no cause of action of any nature shall arise against, any member insurer or its agents or employees, agents or employees of the association, members of the board of directors of the association, or the department or its representatives, for any action taken by them in the performance of their duties or responsibilities under this subsection.”

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