CITIZENS Depopulation…Shut the Front Door!

A few days ago (Saturday 10/6/12) I expressed the opinion that the Citizens Surplus Note Program, had “a hard road ahead.”

That road, it turns out, was even harder than I thought!

Virtually concomitant with my prediction Speaker Designate Will Weatherford (R-Wesley Chapel) dispatched a letter to Citizens board chairman, Carlos Lacassa, in which he said he had…

“…serious questions regarding the process by which the proposed program was approved, the sufficiency of the information and analysis on which the approval was based, and uncertainties regarding the Board’s legal authority to adopt and implement the program.”

While that’s enough to discourage just about any entity from undertaking just about any endeavor, the crowning blow was…

“I am concerned that the Board’s aggressive timeline will result in the program’s implementation before… members  of the Legislature complete hearings on this important matter of state policy.”

The next meetings of the Depopulation Committee are October 9 (tomorrow) & the 15th.  At the time of this writing there’s no published agenda but a discussion of the Weatherford letter, as well as other opposition, is sure to surface and, I predict…sure to trigger the demise of surplus notes.

Fortunately, those responsible for its defeat will have an opportunity to pass legislation that will keep down the number of policies that return to Citizens after being taken out using the traditional depopulation approach.

It’s called “churning” and surplus notes or not, it needs to stop!

The 2013 legislature can “shut the front door” by implementing provisions along the following lines:

MARKET BASED ELIGIBILITY INITIATIVES (MBEI)–like other complicated Citizens initiatives  (I.E.  it’s plan of operation) the statute allowing geographical areas to have different Citizens eligibility requirements or operational procedures needs to be reviewed and implemented in a coherent fashion. To date Citizens board has ignored the opportunity it provides.  Lawmakers, therefore, should require the drafting of a plan by the board to be amended/approved by the Financial Services Commission (Governor & Cabinet) and then implemented by Citizens staff. (See NOTE #1 below)

REPEAL MULTI-POLICY DISCOUNT–repeal the provision that allows the granting of an auto discount whenever a Citizens policy is serviced by an agent that is also writing the auto. (See NOTE #2 below)

MANDATORY FLOOD COVERAGE–all Citizens policyholders who purchase wind coverage should be required to purchase the minimum amount of Flood coverage available from the NFIP.  This used to be required by the FWUA but, was later prohibited by statute, and would keep down Citizens claims expense, reduce litigation and confusion after a storm and the premium would fall outside Citizens 10% glide path.

ELIGIBILITY–close down the Citizens front door for those who have other options.  Regardless of price, those who have a private market options at OIR approved rates should not have benefit of a subsidized rate funded by assessments on others who are in the private market.   This was the law prior to 2008 but enforceability was the issue as those who wanted the lower rate were always able to find an agent who would put them into Citizens despite prohibitions.  Find a way, using the MBEI statute–stiffer penalties, diligent search requirements for “The Consumer”, etc….to close the front door to those with options.  In lieu of that, use the MBEI statute to entirely “Decertify” competitive counties or areas as eligible for HO-3’s.

MBEI COVERAGE APPROACH–consider allowing better coverage in areas where there is no market; for example sell an HO-3 with the full liability, etc.  in areas where there is no private market.  But sell a more restrictive coverage form where there are plenty of private options as determined by the OIR using the QUASR report–maybe a scaled back policy form, an HO-8 or DP2, etc.  Provide Builders Risk on this basis only  in certain areas where the need is demonstrated; again, MBEI approach.  (See NOTE #3 below)

FWUA BOUNDARIES–Consider developing a long-term approach for drawing the wind-pool boundaries based on science instead of politics or convenience.  Remember, moving the boundaries doesn’t mean people can’t go to Citizens, just that they are only eligible for a multi-peril policy instead of a wind only policy.  This will reduce assessment potential and create an environment for policyholders to find a private carrier for multi-peril coverage including wind, which will be a better option than Citizens which is reducing coverage for perils other than wind.

AGENT APPOINTMENTS: Citizens agents should only be those who have full appointments to write new business with a minimum of two carriers that can demonstrate they are actually writing new residential business in Florida as determined by the OIR.

GLIDE PATH SUNSET–Decide on a date to “sunset” the Citizens 10% glide path. Specifically allowing it to continue or to be increased by affirmative vote of the legislature.  Require that such vote be presented to lawmakers in a stand-alone option, not as part of other bills or legislation.   Provide that, “if” the bill was not allowed to come to a vote, for whatever reason,  the FSC (Financial Services Commission) could re-implement the glide path for three years by unanimous vote. Failing all that the glide path could stand repealed in, say…2016.  Lawmakers, of course, can always change the law before 2016 to say whatever they wanted.

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NOTE #1: Both the statutes and  Citizens plan of operation (Section 8(E)) authorize the Citizens board to: “…establish, subject to approval by the office, different eligibility requirements and operational procedures for any line or type of coverage for any specified county or area if the board determines that such changes are justified due to the voluntary market being sufficiently stable and competitive in such area or for such line or type of coverage…”

NOTE #2: Often referred to as the State Farm discount, Fs627.0655, says “an insurer or person authorized to engage in the business of insurance in this state may include, in the premium charged an insured for any policy, contract, or certificate of insurance, a discount based on the fact that another policy, contract, or certificate of any type has been purchased by the insured from the same insurer or insurer group, the Citizens Property Insurance Corporation created under s. 627.351(6) if the same insurance agent is servicing both policies, or an insurer that has removed the policy from the Citizens Property Insurance Corporation if the same insurance agent is servicing both policies.”

NOTE #3: QUASR is the Quarterly Supplemental Reporting data given to the OIR by every residential writer detailing all residential business written, cancelled, non-renewed, by line of coverage, with wind/x-wind, for every Florida territory.

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