Re: December 7, 2006 Meeting of the Board of Governors of Florida's Citizens Property Insurance Corporation.

 

This post includes the evidence presented to the Board of Governors of Citizens Property Insurance Corporation by Dennis J. Wall.

 

You're thinking about this place all wrong, George Bailey said, describing the Bailey Building and Loan in the movie, "It's A Wonderful Life". It is my understanding that three things are set to occur in the life of Citizens. Only one is arguably compatible with Citizens' mission as the insurer of last resort in Florida for certain kinds of Property Coverage.

Booting up the computer is a big help here.  The background is massive and it may take a computer to put the facts in focus.  A lot of solid recent newspaper reporting (some of which is linked here) helps a great deal, too.

First, a Premium Rate increase of some 25.9 percent for Wind Coverage is going to take effect January 1, 2007 based on a fact-based computer Model that predicts future Hurricane occurrences including Catastrophe Claims.  The fact-based Model Rate Increase applies to all of the 1.2 Million to 1.3 Million Citizens Policyholders.  Citizens Policyholders include Homeowners and Businesses.

The effect is illustrated by the situation of a typical Homeowner or Business Owner who pays, say, $1,000.00 a year in Citizens Property Premiums.  The fact-based 25.9 percent Increase means that the Premium for a manufactured home in The Villages, Florida, is going to increase to $1,259.00 a year on January 1st.

Parenthetically, this illustration comes from a real-life example of an experience possible in any area of Florida.  Last year, my Mother sold her condo and essentially swapped the sale price of her condo, for the purchase price of a manufactured house she moved into in The Villages.  She died without Insurance on her newly acquired house.  In order to sell her house, my wife and I had to buy Insurance on it.  We paid a Premium to Citizens for Homeowner's Insurance earlier in 2006 on my deceased Mother's manufactured house in The Villages.  For present purposes, my Mother could have moved into many other areas of Florida, and this is only an example, of course.

The same effect is going to be borne, of course, by a Small Business in Orlando -- or anywhere else in Florida.

This first proposed Premium Increase is at least arguably compatible with Citizens' mission to be a source of Insurance Coverage, yet charge higher Premiums than are charged on the open market so as to be the insurer of last resort in Florida. For Wind Coverage, Citizens is in reality the only insurer in many areas in Florida.  See for example John Hielscher, "Citizens Insurance Seeks Big Increase"  published on November 18, 2006 by the Sarasota Herald Tribune (Registration required to access this article, stated on the site to be "FREE"). 

Second, the Citizens' Rate structure is apparently set to be changed, for the first time, to include opinions and estimates and not facts. This will add 55.8 percent on top of the 25.9 percent Increase.  The 55.8 percent increase is set to take effect as of March 1, 2007 on the 700,000 people holding residential Wind Coverage under their Citizens Policies.

Our hypothetical Homeowner currently paying $1,000.00 in Premium on her Home in The Villages will start paying the $1,259.00 on January 1st, but her total jumps as of March 1st to $1,962.00.  This is what the second and addtional Rate Increase means.

It is an additional Wind Coverage Premium Rate increase that is compounded on top of the first Increase.  Reports advise that this second proposal is based in part on new requirements for Citizens to increase "reserves".  Reserves are amounts of money taken out of circulation by Citizens to pay future claims.  The new law taking effect March 1st requires Citizens to maximize reserves to pay claims from storms that might hit Florida on average once every 70 years.  Thereafter, Citizens is required to increase reserves to cover claims from a once-every-100-years Hurricane.  See Beatrice E. Garcia, "Citizens Insurance Chief Wants to Scrap Rate-Hike Law" (MiamiHerald.com, Tuesday, November 28, 2006).

Further, this proposed second Rate Increase is also reported to add into the mix estimated charges for "reinsurance" for Policyholders in the High Risk Account category.  See  Paige  St. John,  "Citizens  Property  Insurance Looks  to  Raise  Rates  Again",  published  November 17, 2006  in the Tallahassee Democrat online  access here for "Archives" search, fee may be required by tallahassee.com. This effective tax on Citizens Policyholders will take effect March 1, 2007 under this 2006 legislation, based at least in part on the prevailing charge for reinsurance in the open market -- whether or not reinsurance is actually purchased.

It is reported that Citizens does not purchase reinsurance in the open market, however.  Randy Diamond, "Special Session on Insurance up to Crist" (Palm Beach Post, Thursday, November 16, 2006). 

Recently, some corporate headquarters interested in Premium Increases, based outside of Florida are agitating to encourage a switch to opinion-based input predictions.  See Peter G. Gosselin, "Insurers Learn to Pinpoint Risks -- and Avoid Them" (Los Angeles Times, Tuesday, November 28, 2006, page A1, col. 2)(Note:  Registration for this newspaper article is required, but is stated to be FREE).  Citizens Property Insurance Corporation rightly rejects the use of agendas other than empirical evidence as a basis for computer Models on which Hurricanes are predicted and resulting Premiums are charged. See the Post here on this site on November 6, 2006, "CatClaims Computer Models and Reality in Florida", and the links in it.

At the end of the most recent legislative session, Florida lawmakers may have been provided the opinion-based proposals to rely on.  See Tom Zucco, "Citizens Chief Resists Rate Hike" (St. Pete Times Online Thursday, November 23, 2006).  Some legislators describe the second proposed Citizens Rate Increase as coming to them at the last minute.  See Kevin Begos & Michael Fechter, "Legislature Targets Insurance"  (Tampa Tribune, Thursday, November 30, 2006).

Premium Rates charged by Citizens since its inception, however, are based instead on the same base of empirical evidence that is input into the invaluable Computer Model of Hurricane and other Catastrophe Claims by which Rate increases sought by private, commercially run Insurance Companies are judged. Moreover,  Florida taxpayers have input $2.7 Million  ($2,700,000.00) into exactly a fact-based Computer Model to predict the Hurricanes Floridians and their Insurance Carriers are likely to experience.      

The members of the Board of Governors of Citizens are obliged to operate Citizens pursuant to a Plan of Operation using their demonstrated expertise in insurance. See Fla. Stat. § 627.351(6){here is a link to the statute as made available through the Citizens Property Insurance Corp. website}; Plan of Operation Section 6 {and here is a link to the Plan of Operation also made available through the Citizens website}.  The members of the Citizens Board of Governors have the authority to advise the Florida Legislature that this additional Wind Coverage Rate Premium increase scheduled to take place on March 1, 2007 should not be implemented or that any and all non-Model non-evidence requirements should be eliminated. Individual Floridians will not be financially able to pay Premiums that are thereby allowed to increase the already skyrocketing costs of Insurance Coverage needed to purchase Homes. Businesses will not locate to areas in Florida  where individuals cannot afford to live and work.  "The lack of available and affordable property insurance is the biggest threat to our economy," says the Governor of Florida:  Governor Jeb Bush quoted on Thursday, November 30, 2006 in the South Florida Sun-Sentinel, article by Mark Hollis, "Special Session Will Seek Ways to Ease Soaring Homeowner Insurance Rates".

If this second and additional Premium Increase takes effect because of short-sighted greed for quick Premium dollars, it will truly kill the economic "golden goose"in Florida.  Already, reports are rising of many undesirable unintended consequences, including:  Individual Floridians will not be able to pay maintenance fees to keep up their houses and condominiums, prospective employees of Florida Businesses just cannot afford the cost of these Insurance Premium Increases, many Businesses will not be able to afford or even to find Property Insurance in Florida, and banks and other lenders may begin to foreclose.  See, for example, in addition to many other articles including links in this post:  Beatrice E. Garcia & Gary Fineout, "Insurance Crisis Will be a Tough Test for Legislators" (MiamiHerald.com, Thursday, November 30, 2006); John Hielscher, "Businesses Brace for Citizens Rate Hike", published by the Sarasota Herald Tribune, Tuesday, November 21, 2006 ("FREE" Registration stated as such is required on the Herald Tribune Web Site through this link).   Thus the requirements imposed as bases for a second additional and separate Premium Rate increase should be revisited immediately.

Third, regarding Commercial Nonresidential Property Insurance policies in a High Risk Account that provide coverage for the peril of Wind, Citizens' actuarial and underwriting committee has apparently recommended yet a third additional increase. Citizens Prop. Ins. Corp. Press Release dated November 16, 2006, "Citizens Committee Considers Rate Increases to Include Cost of Reinsurance".  The proposed Premium Rate increase would be limited to such HRA Businesses, but this would still affect 16,800 Businesses seeking this Insurance.  The proposal would increase their Premiums by 610 percent across the State.  Increases would be greater along the Florida Coasts, where Wind is an even greater Peril to Property.  In Sarasota, for example, the projected Premium Increase may be as high as 1,263 percent.  If our hypothetical Small Business has to pay that kind of Premium Increase, then its current $1,000.00 Citizens Premium would jump first to $1,259.00 as of January 1st under the first proposal, and then to $15,901.17 two months later.  It is no wonder, then, that such Increases knock the breath even out of some people who are used to past Insurance Increases.  They are too much for Business Owners in Florida to consider, let alone to pay.  It is reported, for example, that not one Business has signed up for the even higher Rates that are going to be charged by the new Florida Property and Casualty Joint Underwriting Association.   

Perhaps ironically, the Citizens committee's announced justification is a desire to match the Rates likely to be charged by the new Florida Property and Casualty Joint Underwriting Association.  See Kathy Bushouse, "Citizens Proposes Massive Insurance Increases" (South Florida Sun-Sentinel, Friday, November 17, 2006)(Note:  Registration is required for this newspaper article, but is stated to be FREE).  If HRA Rates charged by Citizens are going to rise for Businesses in this category, however, the consequences represent a policy choice that should be made directly by the elected representatives in the Florida Legislature. If the members of the Florida Legislature want this type of Premium Rate Increase by Citizens, then that is a policy choice which they alone have the authority to make.

To make it, the Florida Legislature would have to declare that the effects of this third additional proposed increase on an already burdened economy in Florida are mandated, for some reason, by the existence of the new PCJUA or by any other cause.  Nothing in the statutory authority provided to Citizens Property Insurance Corporation exists to allow Citizens to impose this six-fold Insurance Premium Rate increase, not in 2007 or ever.

      In brief summary, three (3) Premium Rate Increase Proposals are pending, as of December 1, 2007, before the Florida Board of Governors of Florida's Citizens Property Insurance Corporation. Only the first of these three (3) proposals are based on empirical evidence that predicts Catastrophe Claims:

 

First, a Premium Rate increase of some 25.9 percent for Wind Coverage has been authorized by the Florida Legislature to take effect January 1, 2007 based on a fact-based computer Model that predicts future Hurricane occurrences including Catastrophe Claims. This proposed Increase is the only pending proposed Increase which is arguably compatible with the fact-based Computer Model that predicts future Hurricane CatClaims including on insurance policies written through Citizens.

 

Second, despite some agitation by some people who live outside of Florida to encourage a switch to opinion-based input predictions, previous Florida Legislatures enacting Citizens Property Insurance Corporation rightly reject the use of agendas other than empirical evidence as a basis for computer Models on which Hurricanes are predicted and resulting Premiums are charged.

 

Third and finally, a committee of the Corporation has apparently recommended yet a third additional Premium Increase, this one regarding Commercial Nonresidential Property Insurance policies at High Risk to Wind perils. The consequences are potentially disastrous to businesses already in Florida or considering relocation to Florida. This third proposed additional Citizens Premium Increase represents a policy decision which only the Legislature of Florida should make.

 

I respectfully urge the members of the Citizens Board of Governors, to remember the purposes of Citizens exists and to think about why this place has life, as Mr. George Bailey might say. Thank you for your consideration.

 
This post includes the evidence presented to the Board of Governors of Citizens Property Insurance Corporation by Dennis J. Wall.

 
REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.