Citizens agrees to renew, write new builder’s risk coverage in Florida

Citizens Property Insurance Corp. has reversed a June decision to cancel its builder’s risk program and agreed to renew existing builder’s risk policies and write new policies in Florida until the end of the year.

The shift in policy was unanimously approved by the board of governors during a July 21 emergency meeting. The vote came after Florida Chief Financial Officer Tom Gallagher and Insurance Commissioner Kevin McCarty asked the insurer to reconsider its decision to stop selling builder’s risk policies in light of the lack of a voluntary market for the risks.

The board also approved a reclassification of continuous-care residential communities’ coverage.

An emergency meeting was necessary due to Citizens June decision to scale back its builder’s risk coverage, effective July 15. Citizens carries about 6,000 builder’s risk policies that cover about $4.5 billion in properties under construction.

“As you know our decision in June to discontinue builder’s risk coverage has caused quite a ripple throughout Florida, particularly in South Florida, but not necessarily just South Florida,” explained Bruce Douglas, Citizens board of governor’s chair. “Our decision was the right one in our opinion, in the opinion of the Office of Insurance Regulation and the Chief Financial Officer of the state.”

The board unanimously agreed that Citizens would effective immediately renew existing builder’s risk policies, but only at actuarially sound rates, until Dec. 31, 2006.

Also, Citizens agreed to not cancel existing builder’s risk policies other than for standard cancellation reasons.

The decision to write the policies until the end of the year is intended to give the market time to stabilize, after which it is hoped that the voluntary and surplus lines markets will resume writing these policies.

The new policy will be reviewed by the Citizens board at its November meeting.

Douglas defended the June decision to cancel the builder’s risk program as the correct response at the time to inquiries from some of the same public officials who have since asked it to reinstate the program.

“The Office of Insurance Regulation wrote asking us to justify why we write builders risk,” Douglas said, “and in researching we could not find any reason, order, statute or direction saying that we should or should not write builder’s risk. In response, we made our decision at the June meeting.”

Now, despite the absence specific statutory provisions requiring it to write builder’s risk, board members have agreed to reinstate the program.

“Our action today is a serious response to the market conditions for builder’s risk,” Douglas said. “We have been in this business since the 1970s, nothing by law or directive says that we must carry builder’s risk but we are doing this because the market demands it, the economy of Florida needs some interim plan to get us through.”

“While Citizens made the right decision 30 days ago and under normal times we should not be in this business, these are not normal times and builder’s risk coverage is virtually unavailable in Florida,” said Jay Odom, a Citizens board member. “I have searched high and low for builders’ risk insurance for my own company. At this point of time for the Florida economy we don’t have any choice but to do this.”

CFO, OIR requests
The day before the program was about to be cancelled, July 14, Florida CFO Gallagher sent Douglas a letter asking the board to “revisit (its) previous decision to non-renew and cancel builder’s risk policies” because “there is no viable private sector coverage available.”

Gallagher said Florida could face an economic crisis if builders could not obtain coverage. He maintained that, because OIR had not specifically ordered Citizens to stop writing the policies, he believed “this coverage should be made available through Citizens.”

Citizens also heard from Insurance Commissioner McCarty, who in a July 20 letter expressed his “concern about the current non-availability [of builder’s risk coverage] and asking us to reconsider,” Douglas said.

Board members at the meeting included Bruce Douglas, chairperson; John Collins; Earl Horton Jr.; John Collins, Jr., chairperson of the Reinsurance Committee; Jay Odom and Gloria Fletcher.

“The prospects for us depopulating in general continue to look bleak,” Douglas said. “We need to start rethinking our role as an interim solution.”

Douglas said he felt that while the initial mission of Citizens was as a five or seven year solution, Florida now needs a long-term solution for its economy and for its insurance market.

“Mississippi, Alabama, Texas, Louisiana and all those other states are now wishing that they were where the state of Florida is now with Citizens,” Odom commented. “More than 1.3 million Florida citizens now have insurance that would not have it otherwise.”

Bob Ricker, Citizens president, advised any builder that applied for a builder’s risk policy during the past week and was turned down, to reapply. He said that after this decision anyone who is issued a new policy will be covered on an ongoing basis. He said policy will not be backdated.

Continuing care residential policies
The second item on the agenda related to continuing care residential communities.

Douglas said Citizens reclassified residential communities as commercial residential communities, stipulating that no single building has less than 75 percent residents.

Now Citizens will not cover a building that provides medical or hospital service in excess of 25 percent of the total building. Other buildings in these communities, in which the individual building has 75 percent or more of individual residents, will be covered as a commercial residential property.

Before this decision, these types of properties were classified as commercial non-residential risk in Citizens high-risk account.

“The distinction we are making is that as a risk continuing care residential communities are generally residential in nature,” Douglas explained. “We are making a clarification to our rules that if a CCRC qualifies as a commercial residential risk, then we look at the occupancy of each of the buildings in the complex to determine if the character of that building is residential in nature, and if so, that building may be written as a commercial residential risk on a Citizens policy throughout the state.

“We have done a good thing for the many, many people who live in those communities,” Douglas concluded.

Topics Florida