• Policyholders and Consumer Advocates Urge Florida Office of Insurance Regulation to Reject Citizens Property Insurance Corporation's Proposed Rate Hike During Public Hearing in Miami
  • September 25, 2012
  • Law Firm: Colodny Fass Talenfeld Karlinsky Abate Webb P.A. - Fort Lauderdale Office
  • "Devastating," "unfair" and "money-grubbing."

    Those were some of the terms used during a September 20, 2012 public hearing in Miami to describe a proposed 2013 rate increase Citizens Property Insurance Corporation ("Citizens") has submitted for approval to the Florida Office of Insurance Regulation ("OIR").  Known as Florida's "insurer-of-last resort," Citizens is seeking a statewide average increase of 11.1 percent for homeowners in coastal areas.

    During the meeting, homeowners, state legislators and even Florida's Insurance Consumer Advocate Robin Westcott urged the OIR to reject the proposed rate hikes, saying the increases would make home ownership virtually unaffordable and devastate Florida's struggling real estate market.  About 90 people attended the four-hour public hearing at Miami-Dade College's Wolfson Campus.

    A decision on Citizens' rate filing is expected by October 1, 2012.

    Proposed rate increases for homeowners in other areas of the state average about 12 percent.  Citizens also is seeking higher rates for mobile homes, condominium associations, and other commercial residential and non-residential property.

    Representatives from Citizens defended the proposed increases, saying the state's largest insurer is not collecting enough premium to pay claims should a massive storm hit.  Florida law caps Citizens' rate increases at 10 percent a year.  Citizens currently has about 1.4 million customers.

    Citizens' CEO and President Barry Gilway called Citizens' continued growth "substantial," noting that the company is writing 8,000 new policies a week, 30,000 new policies a month, and 300,000 new policies a year.

    "We are not the enemy," Mr. Gilway stated.  "We are not on the other side of the street.  We are hired by and work for taxpayers, and it is our obligation to keep the rates down for taxpayers.  We are here to make proposals in the best interest of all policyholders."

    Citizens' Chief Financial Officer Sharon Binnun said the goals of the 2013 rate filing are to show what actuarially sound rates look like, abide by the 10 percent Glide Path, decrease competition with the private market in order to reduce exposure, and mitigate reduction in surplus due to inadequate rates.

    Florida Insurance Consumer Advocate Westcott said Citizens' proposed rate hikes did not take into consideration the dramatic drop in sinkhole claims filed in 2012.  She also said the filing appeared to over-estimate certain cost projections.

    "This filing does not justify the increase requested," Ms. Westcott said.  "The goal is to make sure rates are adequate, but also that rates reflect actual risk so that policyholders are not bearing any financial burden beyond what is necessary to protect their families, homes, and businesses."

    Florida Senator Mike Fasano, an outspoken critic of Citizens, chastised the huge insurer for seeking additional increases at a time when rates have already risen because of the recent removal of policyholders' mitigation credits under a controversial re-inspection program.  Further, he reminded that Citizens' coverages have been slashed and replacement cost calculation methods have been modified.

    "Citizens Property Insurance Corporation has filed a premium rate increase that . . . is not warranted and is, frankly, the epitome of arrogance," Senator Fasano said, speaking before the seven-member OIR panel composed of actuaries, attorneys, and regulators, including Florida Insurance Commissioner Kevin McCarty.

    "When we talk about rate increases consider this:  They have already had a rate increase.  They have taken away the mitigation discounts from thousands of homes  . . . they have found a way to raise rates without having to ask your permission.  This is a company that has strayed from its policy's mission," Senator Fasano continued.

    He added that the proposed sinkhole coverage rate increases for Pasco and Hernando counties total about 61 percent -- a cost burden residents cannot bear.

    He urged the OIR to reject the premium application outright.

    Miami resident and retiree Fernando Gonzalez was one of more than a dozen homeowners who begged the OIR panel to deny Citizens' rate hike request.

    "The price of insurance is impossible to afford," Mr. Gonzalez said.  He suggested the government create a comprehensive type of insurance that could be affordable to those in poverty.

    "People have to survive.  Everything is so expensive," he added.

    Holding up his insurance bill, retiree Hernan Santiesteban of Miami told the panel he canceled his homeowner's policy because his premium practically doubled from one year to the next.  He couldn't afford his bill.

    "I know there are many old people who cannot afford insurance because right now it is too high," Mr. Santiesteban conceded.  "Please don't let this company increase the rates, because then we are going to have thousands of people lose their homes in the state."

    Daphnee Jean Baptiste, a Citizens' policyholder since 2005, said her insurance premiums increased dramatically after her home was re-inspected and her mitigation credits removed.

    "I decided I would change companies.  I called a few companies and they said they can't cover me.  I felt so powerless," Ms. Jean Baptiste said.

    The hearing included presentations by Citizens' staff who explained how the rate levels were determined.  At one point, Citizens' Chief Actuary Brian Donovan came under fire when OIR officials peppered him with questions about which hurricane model was selected for use in determining projected future losses and loss adjustment expenses used in the rate filing.

    In a slide show that compared projected losses and loss adjustment expenses from the AIR, RMS and Florida Public Hurricane Models, Citizens showed rate indications from each.

    With one exception, the AIR Model had been chosen each time, leading to the highest rate indication in each instance.  The Public Model had been chosen for condominiums - its projected future losses were higher for condominium than that of AIR's.

    Why Citizens selected those models was a question the OIR panel tried unsuccessfully to get Citizens' officials to answer.

    "From an actuarial standpoint, can you explain why you picked the AIR Model?" OIR actuary Ken Ritzenthaler asked Mr. Donovan.

    "The AIR is the model we use for various analyses," Mr. Donovan explained, but conceded that "any of the other models were acceptable" as well.

    OIR Actuary Robert Lee and Commissioner McCarty also asked for - but did not receive - a clear answer as to why the models with the highest rates were used to figure the indications.

    They also asked questions about how risk loads were determined, again receiving answers that were somewhat unclear.

    During a press conference later, Commissioner McCarty expressed concern that the Model that generated the highest future loss estimates was used each time.

    "We were trying to see if there was an actuarial basis for that determination," Commissioner McCarty said.  "In some places where the Public Model was lower, they chose not to use the Public Model."

    We were really trying to dig into what was the thought process in those decisions," he added.

    OIR General Counsel Belinda Miller noted that indicated rates are not firm numbers, but are based on estimates.

    "What people need to understand is that the indicated rate that is being shown is based on estimates and if you pick different estimates you get different numbers," Ms. Miller explained.

    Commissioner McCarty said there also is lingering concern over sinkhole costs.  He said the proposed rate hikes could raise sinkhole rates in Pasco, Hernando and Hillsborough counties between $700 and $750 a year.

    "This would of course be on the back of a rate increase they just had last year.  This obviously is going to be very burdensome for consumers with a back-to-back increase," he said.

    Mr. Gilway closed the public hearing, saying that Citizens was "reaching out" and "making changes" to be more transparent and redefine certain programs, but warned that growth would continue to skyrocket if the gigantic insurer does not become less competitive.

    "We have a long way to go," he admitted, noting that Citizens will continue to grow unchecked if it remains the "cheapest game in town," and if no other markets are available.

    "Until that changes . . . until they believe they can charge appropriate rates, the private market will not return," Mr. Gilway said.

    With no other business to discuss, the OIR hearing was concluded.