One year after enacting reforms designed to reduce the amount of homeowners business in the state’s insurer, state lawmakers are now looking to further shrink Citizens Property Insurance Corp. by targeting its commercial lines business.
Citizens Property Insurance currently one million policies in force, a number not seen since the insurer dropped below that mark in August 2006.
Much of the credit for the reduction in policies is based on the private residential market growing after eight years without a major hurricane and a soft reinsurance market. Some private insurers have taken on Citizens policies. There have also been legislative steps including addressing sinkhole losses.
In 2014 alone, private insurers have received approval to remove up to 334,341 policies from Citizens, of which 89,469 have thus far been removed.
Now, lawmakers are looking at additional ways to depopulate Citizens and its commercial lines of coverage are at the top of the list.
One proposal considered by lawmakers is requiring Citizens to create a clearinghouse mechanism similar to the one that the insurer currently operates for its residential coverage.
In theory, the clearinghouse would give private insurers the opportunity to offer prospective commercial-residential policyholders coverage before they are eligible for Citizens coverage.
But from a functional perspective, most of the similarities end there.
However there are few insurers are actively involved in the commercial residential market. Citizens handles 43 percent of the market, representing nearly $93 billion in insured value.
American Coastal Insurance Co., QBE Insurance Corp. and American Capital Assurance Corp. represent another 40 percent of the market. The remaining 20 percent of the market is shared among a handful of the other insurers, some which have only one or two commercial residential policies in force.
Florida Association of Insurance Agents Senior Vice President Kyle Ulrich said that along with the small number of insurers in the market, there are few agents that specialize in the business.
Ulrich said that could prove to be a disincentive for insurers to participate in the clearinghouse, which requires an insurer offering coverage to a consumer to appoint their agent.
“There are only a couple a dozen agents that write the vast majority of the business and some of those companies don’t want to give John Doe agents an appointment,” said Ulrich.
Underwriting commercial-residential policies is very different from underwriting personal residential policies. For personal residential policies, there are a few criteria common to each policy application such as age of the property, age of the roof and type of construction.
That allows insurers to make a quick decision on whether a policy fits their underwriting criteria.
When it comes to apartment complexes and condominium associations, however, the policies can cover multiple buildings, each of which must be underwritten based on its own characteristics.
“One reason the residential clearinghouse works is that with a small subset of information a company can decide whether to issue a quote,” said Ulrich. “It can take 90 days working with an underwriter to arrive at a quote for a condominium association.”
Citizens President Barry Gilway said that it would take 18 months to develop the commercial business clearinghouse, but even then it would have to be different than the personal-residential clearinghouse.
“Insurance procurement for theses risk is too complex to be fully automated,” said Gilway in a letter to lawmakers. “However, a semi-automated platform, with some manual review of insurance applications during a waiting period, can be developed.”
Senator Banking and Insurance Committee Chair David Simmons (R-Altamonte Springs) has been a vocal advocate of depopulating Citizens’ commercial-residential and commercial non-residential lines of business.
Simmons has floated the idea that Citizens should exit the commercial-residential business totally.
According to Citizens, the number of commercial-residential policies only represents two percent of its overall policy count. However, that two percent accounts for 20 percent of the insurer’s probable maximum loss from a hurricane.
Even so, Simmons agreed to drop the idea when confronted by realtors and others who feared the lack of the Citizens coverage could lead to substantial increase in rates.
“I understand there is a pretty robust market for the properties, but at the same time there were concerns that there might be instances that there would be an inability to find another market,” said Simmons.
Simmons also wanted to increase non-residential commercial rates to actuarially sound levels.
Currently, all commercial policies both residential and non-residential are subject to the so-called glide path that caps annual rate increases at 10 percent. However, an analysis of Citizens numbers show that those policies, while few in number, are charged rates lower than needed.
For example, Citizens says rates for 90 percent of its 21,467 commercial non-residential wind-only policies are 24.3 percent below what actuaries say they should be.
But policies on the coast are even more underpriced and would need rate increases as high as 75 percent to become actuarially sound.
Simmons said that there is support for Citizens leaving the commercial non-residential market, so he wonders why the insurer is not charging actuarially-sound rates that would incentivize the private market to write the business.
“If Citizens is going to write these properties, they should at least do so at actuarially sound rates,” said Simmons.
His committee is considering expanding the glidepath so that commercial non-residential policies would be eligible for a 15 percent annual rate increases.
But several lawmakers oppose the idea, fearing that the change would just lead to higher rates since there is no guarantee that the private market would write the business.
“My fear is we will end up doing what the federal government did with making things actuarially sound,” said Senator Nancy Detert (R-Venice), referring the changes in flood insurance law that are causing rates to skyrocket for some homeowners. “The federal government shocked everybody when they jumped rates and that was only 25 percent and there are more coming.”
Lawmakers are still working on coming up with a bill with some of these or other ideas to be voted on at the committee’s next meeting on March 11.
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