CITIZENS COMMISSIONS…Rebuttal of the “Yeah, but’s…”

Inevitably, after publishing a report on Citizens producer commissions, I get “amen’s” from one corner and “yeah, but’s…” from the other.

Here I’ll address the latter.

In my last post on this subject I showed that OIR data proves agents in Florida are paid less for processing Citizens business than they are by “…any other carrier!”

Agents on the “amen” side of the equation applauded those statements and reminded me that they also have to do more work and their agency’s are devalued due to Citizens not recognizing their common law ownership of the policyholder expirations, as  residual markets in some other states do.

Those from the “Yeah, but…” side of the equation, (mostly non-agents) made statements that were a bit misguided or that warranted a “rebuttal” from me.

Here are three prominent “Yeah, but’s…”   and my “Yeah, but…rebuttal” to each of them.

 Number One:

Yeah, but…“Since Citizens premiums are higher, agents still come out okay and sometimes better than the private market”

Yeah, but…rebuttal: Not true.  In 2007 Citizens premiums were rolled back and frozen 50% below where they should be and are now subject to a 10% annual cap.  They were reduced by another $800 million in mitigation credits.  Meanwhile private carriers are receiving a record level of rate increases. Thus Citizens agents would make less even if Citizens commission percentage was as high as the private market.

Number Two:

Yeah, but...“Shouldn’t Citizens pay as little to agents as it can to discourage new applications?”

Yeah, but… rebuttal: No, because new applications are discouraged to the maximum now (See the reasons here). Further, if Citizens paid zero commission, it maybe could have zero agents, but… it would still  have to do their work, probably internally, which costs significantly more.  And…it creates huge termination costs when employee’s are laid off due to depopulation; and rehired after a storm.  And…the money paid to employee’s is  gone even after a policy cancels midterm–agents, on the other hand, return unearned commissions to Citizens.

Number Three:

Yeah, but…”Citizens pays a commission rate that’s among the highest for any residual market”.

Yeah, but… rebuttal: Not True. In fact, with only one, maybe two exceptions, it’s the opposite–Citizens average statewide commission of 7.3% is the lowest in the entire country for property residual markets and beach plans, as follows:

Alabama                                      8%

California                                    10% new business; 8% renewals

Connecticut                                10%

Delaware                                    10%

District of Columbia                 10%

Georgia                                      10%

Illinois                                        10%

Indiana                                       10%

Iowa                                           10%

Kansas                                       10%

Kentucky                                   10% dwelling and commercial; 5% homeowners

Louisiana                                   10%

Maryland                                   10% dwelling and commercial; 8% homeowners

Massachusetts                         12%

Michigan                                   10%

Minnesota                                 12% new business; 5% renewals

Mississippi Residential             10%

Mississippi Wind                      12% new business; 10% renewals

Missouri                                     12% new business; 10% renewals

New Jersey                                10%

New Mexico                              15% new business; 10% renewals

New York                                  10% (subject to a $15 minimum)

Ohio                                               12% dwelling and homeowners; 10% commercial

Oregon                                         10%

Pennsylvania                              10%

Rhode Island                              12%

South Carolina                           5% or 10% (See NOTE #1 below)

Texas FAIR Plan                        12.5% new business; 10% renewals

Texas Wind                                 16% for all risks except mobile homes (12%)

Washington                                10%

West Virginia                             10%

Wisconsin                                     10%

Source: The Property Insurance Plans Service Office, Inc. (PIPSO)

Keep in mind, Florida’s Citizens 7.3% “effective” rate is a statewide average meaning, in some areas, agents doing the same work receive only slightly more than 5%, if that.   And, while premiums are often higher in those areas so, too, are expenses.

And, no one disputes that Citizens, and Florida’s marketplace generally, require more work of agents, more than any other venue on earth.  And some of those other venues recognize an agents ownership of the expirations and a majority have lower expenses.

In case it’s not obvious–when it comes to the ratio between an agents work and an agents compensation in Citizens, the people of Florida are receiving the best deal anywhere!

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NOTE #1: South Carolina implemented an agency certification program effective July 1, 2000. Agencies with 50 or fewer policies must send at least one licensed person to an educational seminar. Agencies with more than 50 policies must send at least two licensed individuals to an educational seminar. Certified agencies receive a 10% commission and non-certified agencies receive a 5% commission.

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