Citizens’ repopulation concerns
Leadership of Citizens Property Insurance Corporation, the state’s insurer of last resort, are expressing concerns that the Surfside Tower collapse could have a series of negative consequences on the Florida marketplace and lead to an unwelcome repopulation of Citizens commercial lines policies, “significantly increasing” its exposure.
At Citizens’ meeting the week before last, President & CEO Barry Gilway predicted increased scrutiny of condominium policies written by private companies will lead to a tightening of the market and force condo associations to look for new coverage with Citizens. The collapse “will change underwriting requirements fairly dramatically” for both Citizens and private carriers. “It is going to be far more expensive to respond to the increased number of submissions. And it’s not just submissions, it’s the complexity of the submissions,” he said.
Citizens over recent years has dramatically decreased the number of commercial residential policies it writes. “The real question is, just how aggressive do we get? And can we put into policies underwriting criteria that are very explicit, that we will not write a piece of business without a full structural integrity engineer report, as an example? Will we, do we need to require a 40 year recertification in order to write a residential condominium?” Gilway pondered.
Even before the Surfside condo collapse, Citizens was planning to beef-up its inspection services so it can inspect a significantly larger percentage of policies to verify their insurability, potentially reduce claims frequency, and improve the transfer ability of policies via its population program to the private market. Currently, annual inspections are made on only 1 in 100 Citizens policies compared to an industry standard of close to 50%. The Citizens Board on July 14 approved an enhanced vendor inspection contract that will bring the rate to 6 in 100 properties, as a first step. With Citizens’ policy count growing by 6,000 customers per week, it’s a mounting challenge. Its policy count is forecast to reach 766,000 by year’s end.
“We all know that we’re the insurer of first resort, in 91% or 92% of the cases in this state currently,” said Citizens Chairman Carlos Beruff. “And then on top of that, we now have this commercial disaster that’s going to come to our door. And my concern has been clear from day one, which is take aside all of the issues. We have a Category 5 storm in the wrong place in the state of Florida at the wrong time and we could wipe out our reserves pretty handily,” Beruff warned.
“The reaction could extensively be very severe, impacting staffing…and having a significant impact on our overall exposure,” agreed Gilway. “And the last thing we want to do is get back up to that half a trillion dollar exposure level. So I think the issue is going to be a balancing act with our responsibilities in the market.”
In other action, the Citizens Board approved provisions in the recently enacted SB 76 to incorporate final reinsurance costs into its rates, along with glide-path cap and other changes. The changes mean the average rate increase for new and renewing policies after August 1 will be 5.2%, while renewals after Feb. 1, 2022 will go up 7.6%. The increases vary by location and require approval from the Office of Insurance Regulation.
LMA Newsletter of 7-26-21