Citizens Property Insurance Corp., the Florida state-run insurer of last resort, is anticipating its policyholder count will increase in 2018 for the first time since its efforts to shed policies through depopulation began several years ago.
As it moves on from a tumultuous 2017 that included a major hurricane and ongoing assignment of benefits (AOB) abuse, Citizens executives said at its Board of Governors meeting last month that it anticipates more than 60,000 policyholders from private insurance companies will return to the state-run insurer of last resort.
Citizens President, CEO and Executive Director Barry Gilway told the board at the Dec. 13 meeting that the Florida domestic insurance market’s combined ratio and surplus have declined, and the majority of Florida insurers experienced a negative net income for the first time in five years.
The active 2017 storm season is one factor contributing to deteriorating insurer results, but the biggest factor is increasing costs from nonweather-related losses and AOB abuse fueled by attorneys and unscrupulous contractors, which has led to a cumulative negative impact on insurers’ bottom lines. The industry has started taking steps to limit their losses from AOB, including not writing in certain areas of the state where it is the most rampant.
Citizens, which is statutorily obligated to offer coverage when the private market will not, will have to pick up these policies. Gilway said he expects Citizens will see significantly less depopulation next year.
“When the market is healthy, and companies are making money, depopulation soars; when it becomes negative, depopulation drops. We are not expecting a lot of depopulation next year,” Gilway said.
Instead, Gilway said, Citizens is expecting its overall policy count of 442,000 – the lowest it has been since the company was formed in 2002 – to climb back up to around 500,000. Citizens policy count reached a high of 1.4 million before the depopulation program began in 2012.
Gilway said the insurer’s personal lines accounts (PLA) where AOB is having the biggest impact will grow by about 66,000 policies. The company expects its commercial lines policy count to continue to decline because the commercial market is so competitive.
Gilway said Citizens overall premium will likely grow by about $100 million primarily because of the growth in PLA, but added, “the unfortunate thing is we are growing in unprofitable lines and losing business in profitable lines. It’s the nature of the beast.” Gilway said that brings more pressure to focus on finding solutions for the personal lines account segment.
Citizens took several steps in 2017 to mitigate nonweather-related losses and AOB abuse, in addition to an unsuccessful push for legislative reform. Over the summer, Florida regulators approved Citizens request for a $10,000 sublimit on nonweather-related water claims for policyholders who opt not to use the new Citizens managed repair and preferred vendor program. Citizens will also require that contractors and other third parties adhere to the same disclosure responsibilities as policyholders when they accept an assignment of benefit.
The policy changes go into effect for new and renewal policies on May 1, 2018, to coincide with the implementation of Citizens 2018 rates.
Gilway said Citizens’ other efforts to curb AOB abuse have been successful at stabilizing the overall cost of water damage claims, but added nonweather-related water claims remain double the cost of a non-litigated water damage claim in the Tri-County region of Miami-Dade, Palm Beach and Broward.
“The last couple years, at least we are maintaining the same level of severity,” he said.
Still, Citizens’ percentage of operating expenses relative to claims and litigation are increasing. The company expects AOB and litigation costs will account for about 23 percent of its 2018 operating expenses, up from 16 percent in 2017 – an increase of $17 million.
“The scam – and that’s what it is – continues. And until legislative changes are made, it will continue,” Gilway said.
Christine Ashburn, chief Communications, Legislative & External Affairs officer, told the board that the bill the industry supported last year to address AOB abuse and reform the one-way attorney statute blamed for the abuse was reintroduced by Florida Sen. Dorothy Hukill for the upcoming 2018 Florida Legislative session, but she is not optimistic it will be passed next session. The same bill passed by the Florida House in 2017 was also filed again.
“Our legislative priority remains unchanged from 2017 with our primary focus being meaningful assignment of benefits reform,” she said.
Hurricane Irma Response, New Claims System
As of the beginning of December, Citizens had closed nearly 80 percent of its 63,600 Hurricane Irma claims, and the company said it is continuing to work with policyholders whose claims remain open or whose closed claims need to be adjusted further. It reported about 1,476 of its total claims filed had an AOB attached, and 6,312 claims had representation. The total number of claims in the tri-county region was 58.4 percent.
Despite a projected $1.1 billion in Irma losses, Chris Gardner, chairman of Citizens Board of Governors, said the company maintains a $6.4 billion surplus and substantial reinsurance coverage following the payout of Irma claims.
Gilway told the board that Citizens is making improvements to its claims processing in the aftermath of Irma to help with efficiency and communication with its policyholders.
“There are lessons learned with every event, and what we learned very quickly with Irma is that we did not have an online claims capability,” he said.
Gilway said Citizens was not prepared for the magnitude of calls that came in for Irma and the subsequent follow-up calls from customers requesting status updates on their claims. To meet this need after future events, Citizens is upgrading its claims system and implementing a customer portal. The new system will allow insureds and claimants to view the progress of their claims and, once fully implemented, report them online.
“From a consumer standpoint, it clearly will be a huge benefit,” he said.
Citizens will also upgrade its existing Guidewire software and storage platform, the first update since the system was implemented five years ago.