Citizens Security Insurance Corporation - is it really the savior of the Florida Voluntary Market?
I have been through the hard market (where premiums are high, and there is less capacity to write more business because the surplus for future losses is much lower than that of written premium which is not earned, causing the insurer to have less capacity) and the soft market (where insurers are attempting to secure every piece of business to increase their written premium because of a high policyholder surplus), but I have never experienced what is now transpiring in the State of Florida.
Citizens was formulated in 1992, following Hurricane Andrew’s catastrophic damages to South Florida. The purpose was to allow the public to obtain coverage in the voluntary market, and to be eligible an insured must be unable to receive an offer of insurance from an authorized insurer (one authorized by the State of Florida under a certificate of authority to operate as an insurer domiciled in the State of Florida). Those insurers not authorized to operate in the state of Florida may still write insurance “by exception” if they are performing transactions pursuant to the state’s surplus lines coverage laws or if they fall under the classification of re-insurer or captive insurer.
Since my background pertains mainly to that of commercial insurance, I apologize if I am not directly addressing the issues which actually pertain to individual home owners. And I welcome any comments which you may be able to contribute from your own personal experiences. Nevertheless, in the short duration since I have entered the marketplace in south Florida, I have seen situations which make my blood boil.
It is stated that the creation of Citizens was necessitated, due to the fact that many insurers went out of business, while those remaining were forced to cut back policy writing after Hurricane Andrew. In lieu of the government, whether or state or federal, subsidizing those insurers to assist them in remaining viable in the state of Florida, many of these large insurers decided to leave the state. Many valuable underwriting talents, likewise, left Florida with that exodus. Even the federal government’s National Flood Insurance Plan allowed for some subsidization, so that the average citizen could better afford flood insurance, whether necessary for a regular or emergency flood zone or if required by the mortgagee to finance a home or business purchase.
Furthermore, to add to the dilemma, there is less reinsurance capacity (those insurance pools which provide insurance in excess of certain premium losses or a certain premium point at which an insurer may require additional capacity, to conduct normal operations and remain in business). The insurance industry began losing re-insurers after 911 and additionally, many have disappeared with the occurrence of natural disasters (hurricanes, earthquakes and fires)
Florida is a beautiful state and because of its climate, attracts many individuals of differing ages, but mainly, many people look to Florida as their retirement home. Since I have some experience in the condominium arena, I hope that you will not mind if I use that experience to explain my frustration with the existing insurance market, pertaining to Citizens.
For instance, let’s utilize the Condominium arena as an example of how Citizens works. The premiums paid to Citizens are on an upward spiral as are the assessments which are attached to each policy. Not only are the admitted insurers assessed (no wonder insurers left the state and others are unwilling to return, with the large assessments they would have to face). It would not be conducive of expedient business practices to knowingly enter the State of Florida as a domestic insurer, today. After all, in the State of Florida, not only are the insurers assessed, but you, the policy holder, are also assessed on each and every policy. And, that assessment is constantly on the rise. For condominiums, these assessments amount to thousands of dollars, which the unit owners must ultimately pay. So now, not only are you taxed heavily, but you are also paying assessments, similar to an insurance company; assessments to assure Citizens has sufficient monies to pay losses and to be fully funded. Again, where is the state or federal backing? No citizens of any state which I am familiar with has been assessed as highly as those citizens in the state of Florida.
Now, let’s look at it from an independent agent’s standpoint. You are and have been providing insurance to your various condominium clients for several years. You are a professional and wish for your client to have the best possible coverage at the best possible price. Insurers domiciled in the state are now are moving away from those buildings which are built of frame or joisted masonry construction and in some cases, not desiring some masonry non-combustible construction which is not wind resistive.
So, if you, the client, live on the east side of I-95 in Miami and other designated areas, and if you reside in a fire resistive constructed building, you may be provided a “special perils excluding wind” policy with an admitted insurer. You may then additionally secure the “wind and hail perils” coverage from Citizens. The Citizens policy, however, may not be written at the same effective date as your admitted insurer’s policy, and I will explain why in a later paragraph. The only policy Citizens will renew automatically is the “wind coverage” policy.
Citizens also offers a “basic perils” coverage for those outside the wind pool (residing east of I-95 [in Miami], et cetera), or for those who cannot secure insurance through an admitted insurer, including or excluding wind. “Basic perils” include fire, lightning, internal explosion, sinkhole collapse, riot, riot attending a strike, civil commotion, aircraft and vehicle damage, smoke and volcanic eruption and windstorm and hail. Your insurance agent will then secure a “difference in conditions” coverage to provide the “special” coverage excluding flood and earthquake perils.
Again, for those qualifying for coverage through an admitted insurer, “special” coverage may be provided, excluding wind. The wind and hail perils, then, are secured separately through Citizens, for those who qualify in the wind pool and special designated wind areas.
One client I know of was insured through a non-admitted insurer for special perils including wind and hail. Citizens was quoted and it was found that a basic perils and a wind policy could be written to save the client substantial money, and yet be written with an admitted insurer, Citizens. The agency quoted both policies on rating software similar to that of Citizens’. But, because Citizens’ rulings did not allow for specific credits (to be clarified later), one of the policies included what Citizens calls a “deficit” invoice or an additional premium due.
As long as the submission (which consists of a signed application, various forms, pictures and an appraisal), is sent with at least 80% of the premium, the policy will be written, subject to a 10-30 day deficit invoice date by which to pay the balance of the premium. If under 80%, a similar deficit invoice is sent to the agency and the client, but the policy is not issued. (Citizens’ premiums are billed directly to the client, and are not included under agency invoice). This “deficit” invoice payment must be made immediately or the client will be considered cancelled for “non-payment”, in the eyes of state law.
Most condominiums today face many expenses, so their premiums are paid through financing. Let’s go back to that client who wished to write the policies with Citizens in lieu of a non-admitted insurer. The client initially financed the non-admitted carrier’s policy along with other lines of coverage under one finance agreement. Another finance agreement was drafted for the Citizens policies, once they were submitted to the company. The Agent was required to secure the additional funds under the existing Citizens policy to fund the new deficit additional premium because certain credits which normally would have been available were not allowed by Citizens. Only one policy went through. The initial policy premium of the wind policy required the deficit to be paid by a specific date. Although the premiums were forwarded to Citizens prior to the date specified (that being the cancellation date of such deficit), coverage was not provided. Citizens held the initial check submitted with the application for five days after the cancellation date (the date shown on the deficit invoice). Thereafter, their accounting department was supposed to return all the money to the client and there was no insurance. The agent attempted to contact Citizens, advising that they were in possession of an overnight express delivery, evidence stipulating that the premium was received one day before the due date. The agent was then advised, by Citizens, that the check was not received in time by underwriting, thereby ignoring all rules pertaining to coverage being effective the date after receipt in their Jacksonville offices. Now the rule is “interpreted” as the day after receipt by the underwriter, whichever underwriter that may be.
With most insurers, one would then be able to speak to the Citizens accounting department, to apprise them the second check was received in their office on time (its receipt being posted on the internet log). At Citizens, however, you are not allowed to speak to anyone in their accounting department. So, you ask the underwriter, “Is it possible to secure the initial check so that this policy does not cancel?” The underwriter may then tell you that the check has already been returned to the client. Another underwriter, on the next day, may say that they are not allowed to advise the accounting department of receipt of a check. But my latest Citizens underwriter took the cake! He told me with a very matter of fact attitude that there were a million policies to handle at Citizens and that underwriting did not have time to call accounting on each one of them. Well, that does not say a lot for Citizens, if all million policies have such difficulties. Then someone at the state should take a serious look at how Citizens is conducting business. And why no one may speak to the Citizens accounting department in order that a policy may be salvaged and implemented at its original effective date.
Let me explain what happens next. As an agent, you advise your client that the initial check will be sent back to them by Citizens, and that they must return it to Citizens by a specific date, so that the deficit date on the second check will not constitute another cancellation or delay in issuance. In the meantime, your client has not received the Citizens returned first check after one week, so the agent again contacts Citizens, who apprises you, “It was just sent out two days ago,” when, in fact, it had not yet been sent out.
Now it has been over two weeks since the check from Citizens supposedly went out and the client has still not received it. So you contact Citizens again and suggest that perhaps a stop payment needs to be sent, because your client has not received the check. You are then told that a stop payment may not be made until after thirty days from the date the check was sent. Yet, you never actually know when the check was sent, because every time you contact Citizens, someone gives you another story about when it was sent.
Since the client had financed the premiums, the client cannot now afford out-of-pocket money, and the client may not make that payment directly out of condominium association funds. Then the date arrives where the second check was returned, and the first check finally has shown up and has been returned, and the vicious cycle starts all over, again. And, on the internet, the only thing the underwriter places for comment is that the agent of record called for a stop payment.
The agent then explains the entire scenario by phone and in writing to the Citizens underwriter. You plead for the wind coverage policy to carry the same effective date as the other policy written by Citizens for concurrency of perils. You are advised that a senior underwriter will “take it under advisement”, and comments will be placed on the website. The internet site, however, shows comment only that “agent desired to know the effective date”, not that the original effective date should be held, because the deficit actually was received in time, in accordance with the rules. As a result of this scenario, which happens only too frequently, the client had duplicate perils coverage for all except wind and hail, so the non-admitted insurer’s policy could not be cancelled at the date the initial Citizens policy was written. And the underwriter at Citizens finally decides to write the second policy with an effective date two months after the inception of the initial policy. The non-admitted insurer’s policy then, as a result could not be cancelled until two months after the second policy was finally issued, causing extra expense for all members of the condominium association, through no fault of the agent.
On one policy, Citizens did not include wind and hail coverage on a multi-peril policy, through no fault of the agent or the paperwork provided Citizens. Citizens did not comply with the coverage requests of the agency, upon the agency discovering “wind and hail” had not been included. Instead, Citizens returned all the money to the finance company, which paid up the agreement including various policies, in full. And, after the financing was paid, the insured even received an additional return. After four months of apprising Citizens of their error, an endorsement was finally issued adding the perils of wind and hail. This additional premium was almost half-a-million dollars, with only four months in which the insured was allowed to pay under the re-opened finance agreement.
Many problems revolve around the credits offered by Citizens. Mitigation credits by territory should be defined and provided to agents in writing. However, agents have yet to receive copies of these credits, or any information as to the percentages of credit given for HRA business (condo buildings in excess of $10,000,000 in value), especially with respect to the 10% deductible. The mitigation credits may be substantial based upon providing wind and loss prevention measures to your building. There even exist three options which may be offered to clients, but Citizens fails to apprise agents of these options when proposing HRA business. But one area, for which there is a manual rule pertaining to credits for sprinkler systems, seems totally unjustified in its handling.
When writing insurance with an admitted carrier, if your building was fully sprinklered, you would receive a credit. If the Insurance Services Office, which inspects all commercial buildings over 15,000 square feet, stipulated the building was fully sprinklered, but that the rates promulgated by the ISO do not reflect sprinkler credits, a building would be loss controlled by the insurer to determine why the sprinkler system did not warrant credit. Or the insured would be solicited to have the sprinklers maintained or fixed according to a written recommendation of the insurer. The credits for a sprinkler system usually remain on the policy, with an STR (Subject to Rate) endorsement applied. When the final work is completed, if the sprinkler system still can not meet the anticipated performance requirement, the insured then would then be charged the additional premium which was initially credited at the inception of coverage.
Citizens, however, takes a different approach. Let’s say, as an agent, you rate your client’s insurance including a sprinkler credit. You submit the application, rating, photos and all other criteria to Citizens. Citizens re-rates the policy and then stipulates, in accordance with the manual rules, the ISO (Insurance Service Office) has not yet made an inspection of the property to be insured. As a result, the credit may not be given until such inspection is performed. The insured is then sent a deficit invoice for the amount of the sprinkler credit. You then ask Citizens, since they are the insurance company, if they have ordered the ISO inspection. They typically reply that they haven’t done it as yet, or it should have been done, or that it will be ordered within the next thirty days. By this time, the ISO is busy checking out various other commercial risks and their schedule may take the entire year. Will the insured ever be paid back by Citizens for the sprinkler credit once the ISO finds it a valid sprinkler system? We have yet to find out. And what is really interesting is that Citizens will not accept confirmation by the contractor of the sprinkler installation nor the maintenance agreements as acceptable evidence. Only the ISO’s long-awaited inspection results are acceptable.
The condominium association, in conjunction with the services of the insurance agent, may not only complete supplemental applications, but secure an appraisal each year. The Citizens manuals allow for an eighteen month-old appraisal, but essentially, after the eighteen months is over, another appraisal must be secured or the association’s coverage will simply not be renewed. So, the condominium association may as well consider the fact that they will be required to provide new appraisals annually. And because of the legalities involved, most agents, who are not experienced appraisers, are required by Citizens to provide cost estimators, along with the contract stipulating that an appraisal will be accomplished, in order for them to even consider writing coverage. Agents do not need the added liability of “becoming appraisers” as even professional appraisers are concerned with suits, even though they have the experience and background which agents do not. And, in lieu of updating an existing appraisal, the appraisers who do not wish legal ramifications must schedule a new appraisal for a future period with the association, rather than simply upgrading the existing appraisal. This now becomes an additional cost to the association. In fact, there is so much appraisal business required, many of our clients are now advising agents that a new appraisal will not be done for a year. In the meantime, Citizens still requires the information, and for a short time, an agent may be on a limb by providing an old appraisal and cost estimator which has no credence whatsoever, but much liability.
I can understand the State of Florida formulating an insurer to assist the public in securing coverage with an admitted carrier, and to foster such mitigation credits to the existing book of business, to encourage the public to upgrade with wind and hurricane protective buildings and glass. It certainly could not have expected Citizens to run amuck and not follow rules and procedures that other insurers are required to follow in this very same state.
Dear State of Florida, how can you feel you are assisting your public when you have not secured sufficient federal funds to assist in subsidizing the high premiums paid in Florida? How can you expect new insurance companies to enter the Florida marketplace when each of these carriers knows they will be subject to heavy assessments to fund this travesty of an insurance company? How may you expect your residents to remain in Florida when all that may be anticipated are exorbitant premiums and assessments for insurance coverage? How can you not expect a multitude of bankruptcies, for those who no longer may afford their homes, or the rapidly rising dues and assessments which are now required? Not only do many individual unit owners have limited budgets, but they are now faced with additional assessments not only for wind mitigation improvements to lower insurance costs, but also higher dues for the premiums levied against them. And yet, if premiums are paid within the time listed on the deficit invoice, coverage may not be provided at the date requested because there is leeway among underwriters which allows them to act as deity and interpret rules as each sees fit.
In addition to Citizens high costs, FEMA has hit the beach and is proclaiming discrepancies to the initial flood elevations certificates issued. This has constituted a battle and, in some cases, FEMA’s elevation certificates did not include the fact that there were garage enclosures, which do not constitute as high a cost as a building built on a ground level slab. Today, we are fighting the lowest grade evaluations provided by FEMA, and when the fight has been exhausted, condo owners may not only face the exorbitant premiums of Citizens, the costs associated with mitigating wind protective devices, but also paying flood premiums as high as in the millions to insure your buildings to the lesser of 80% of repair or replacement cost or up to $250,000 per unit. And after all, which policy provides coverage for rapid accumulation and the rising of water? FEMA’s. And why have not claims been paid yet for some of the damages sustained by Andrew? Because arbitrators must determine what the proximate cause of the damage was and what damage was attributed to wind driven rain (covered by Citizens or your wind insurer if damage is sustained to the building first) damage or by the flood perils alone. Perhaps the federal government should place together a combined “flood, wind and hail perils” policy or perhaps they could call it a natural disaster policy and include earthquake perils.
I must admit that the feds provided flood coverage through actual insurers who are called service companies. The feds stick to the rules but if they err in such items such as elevation certificates, they at least allow for argument and rebuttal. Whereas Citizens is their own company, not operated like any insurer you have ever dealt with, who may make decisions outside the realm of actual underwriting and whose accounting department you shall never be able to communicate with.
The National Flood Insurance Program also provides options for automatic renewal. They send their renewal notices out in advance and allow for thirty days after the renewal date to pay the premium. Citizens is barely able to write a proper policy and, apparently, doesn’t even value their renewal business enough to put much, if any, effort into it.
Once again… feel free to leave comments about your related homeowner insurance experiences.