Citizens–Cut Commissions; Ignore Decertification?!

For those who doubted either the studies, the facts or most important, the conclusions in my blog posted 1/30/12 titled, “Citizens Commissions…Three Realities!”; there’s no longer room for you to do so.

Actually, there never was–the conclusion was inescapable and supported by facts that were not in dispute.

And, those facts are now irrefutable as confirmed via separate analysis conducted by the Office of Insurance Regulation (OIR) at the request of Citizens.

Recall my previous conclusion that it’s impossible (that’s right, impossible!) for Citizens producer commission percentage to  impact its policy count because, as I stated, Citizens not only requires more work from agents, but…

   “… as a percentage of premium, Citizens commissions are already lower than “any” other private carrier and private carrier premiums are markedly higher than Citizens.”

Read my post cited above; you’ll find links to other documents displaying the commission percentages paid by nearly 60 residential property writers (courtesy of FAIA).  The average, when compared to Citizens, is as follows:

Personal Lines Average Commission

Voluntary Market……………………………………….. 12.55%

Citizens…………………………………………………………7.24%

The separate OIR analysis supports this with the following, as of 3/26/12:

Personal Lines Average Commission

Voluntary Market……………………………………….12.2%

Citizens……………………………………………………….7.3%

Pretty close for government work. (See NOTE #1 below)

But…here’s where it gets interesting.

First, I noticed from the OIR study that carriers who paid more in commission also had the highest policy count.  Universal, for example, had 529,741 policies and paid its agents 11.80%.  St. Johns was third in policy count at 165,190 and paid 12%.

State Farm was second in policy count at 468,526 and pays its agents 11.5% of premium.

The lowest commission percentage paid by the top ten writers was Security First with 110,566 policies at 9.80%.  But, again, and testament to my previous conclusions, the data showed that Security First pays more outside of south Florida and barely above Citizens at 7.5%,  for business in “South Florida”. 

In other words, for less desirable business, when costs are higher (likely due to reinsurance), Security First pays a percentage closer to what Citizens pays–buttressing the argument that Citizens commission percentages discourage (not encourage) new applications.  Security First also enjoys a reputation for having some of the more streamlined systems for agents, thus lowering their processing costs and contributing more to an agents bottom line.

You should know that the original data cited in my previous blog was compiled by FAIA and necessarily didn’t include direct writers.  The OIR data, on the other hand, included commission percentages paid by three direct writers: State Farm, 11.5%; Allstate (Castle Key), 11.5% and USAA, left blank.  (See NOTE #2 below on USAA)

Finally, now that Citizens board has independent regulatory data confirming that agent commissions are irrelevant to depopulation, maybe it can turn its attention to the most relevant depopulation initiativedecertification!

For example, the same OIR report also shows how competitive various parts of the state are and how willing carriers are to write new business.  It shows, in great detail: new policies written, how many were cancelled and non-renewed for every territory and county in Florida and for “every” residential property writer including, USAA, Citizens, State Farm, Allstate, et. al.

Wouldn’t it be interesting to compare State Farms’ non-renewals with Citizens new applications in, oh, let’s say….Alachua County?  Or, how ’bout Orange county?

Or, better yet…how ’bout learning which carriers are trying to write new policies in dozens of inland counties where Citizens policy count continues to grow?  Shouldn’t Citizens be looking at this information?

Though there are a lot of “what if’s” involved, the information is all housed at OIR and easily examined.

And…here’s the big question for Citizens board:

How many thousands of policies are private carriers losing to Citizens in areas you are statutorily authorized to decertify?

Isn’t this worth at least some of the attention currently being showered on issues like agent commission cuts?

Just a little bit, maybe?

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NOTE #1: The immaterial differences are attributable to the OIR including only the top ten writers (instead of 60 as in the FAIA study) and Citizens publishing a statewide average “effective” rate of commission up from 7.24% to 7.3% since my original report.

NOTE #2: I had almost forgotten about USAA. It doesn’t use agents.  Is it sending policies to Citizens and receiving 7.3% commission?  It’s the fifth highest private writer with 130,917 policies– how many policies does USAA’s internal agent send to Citizens, especially wind-only when it doesn’t have any other private options?  Important question for Citizens board to answer as it examines decertification.

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