Citizens' Mission Review

1.Significantly diminish size and growth potential through the elimination of elements that caused Citizens to endure and grow to its current level of population.

2.Complement state mitigation efforts by no longer providing unlimited subsidized coverage to those who can and should mitigate their homes, but choose not to do so.

3.Provide insurance coverage for those who need it, but only for the time and extent of that need and always at prices above approved rates of the voluntary admitted market.

PIRC's recommendation was an operational redirection of Citizens to complement the private marketplace via mitigation oversight and temporary, limited insurance coverage only for those truly in need. It seemed logical to FAIA and PIRC to more closely tie the provision of state-sponsored insurance to the emerging state-sponsored emphasis on mitigation. Then, as now, it was inexplicable for the state of Florida to provide infrastructure (My Safe Florida Homes), funding ($250 million), and incentives (mandatory premium credits) while allowing financially capable owners of non-mitigated properties to purchase subsidized "Cadillac" coverage from the state. This situation persists today, of course, exacerbated with suppressed (and frozen rates) and the new "competitive alternative" approach implemented during the 2007 special session.

A Trigger

Of course, putting Citizens through yet another restructuring is extremely disruptive. The costs and inefficiencies of so many changes after each legislative session are indisputable. This is particularly true while Citizens remains Florida's largest insurer (1.2 million policies). On the other hand, if it could gain control of its front door (approximately 50,000 new applications a month), then current depopulation plans (approximately 500,000 policies to be removed in 2008) could reduce its ranks to the point where restructuring is possible without creating undue burdens on anyone with the possible and regrettable exception of Citizens' staff.

In the mid 1990s, Citizens' predecessor, the Florida Residential Property and Casualty Joint Underwriting Association (Homeowners', including wind) reached a peek population of 936,000. But, thanks to takeout efforts, limited eligibility, and non-competitive rates, its policy count nose-dived to just 60,000. This tripped a statutory trigger that implemented various changes once the policy count dipped below 200,000. Such a trigger could be established for Citizens, too, so that artificial repopulation would be avoided via stiffer eligibility requirements, reduced coverage, and other appropriate disincentives–again, all with little or no disruption to agents, carriers, and consumers.

The Provisional Property Facility

If Citizens' population could be allowed to reach a predetermined policy count trigger, it might be logical and appropriate to implement changes that would keep it from ever artificially repopulating again. That's where FAIA's (PIRC's) new approach, called a Provisional Property Facility, could come in handy. There are five cornerstones:

1.Re-management–Citizens' board makeup would continue as is, but would manage from a new perspective. Rather than only bearing risk, it would become more of a market placement and mitigation assistance facility, providing only interim insurance protection until a homeowner can qualify to be insured with a voluntary carrier. By beefing up the Florida Market Assistance Plan (FMAP) and using other placement tools, the Florida Provisional Property Facility (FPPF) would help applicants find voluntary coverage immediately, if available anywhere in the state or, when not available, assist with improving their home or business so they can qualify for voluntary coverage within a time certain. It's possible for some properties, uninsurable for reasons other than wind or that can't be mitigated, to remain in the FPPF until an acceptable private alternative develops, which, worst case, might never happen.

2.Coverage–For risks it cannot place, the FPPF would provide insurance protection, but only the minimum coverage necessary to meet the requirements of the secondary lending market. This could be a multi-peril package roughly like that of an HO-8 policy or it could be some other non-standard approach that might include various limitations such as: higher deductibles, no replacement cost on contents or roofs, exclusions for highly susceptible property like pool enclosures. It might be that a "wind-only" solution makes sense for some risks or a dwelling form approach x-liability for others. Theoretically, any coverage available voluntarily, even on a supplemental wrap-round basis, would not be needed from the FPPF. The point is to be flexible enough to blend, not compete, with the voluntary market's ability to provide coverage. In so doing, both exposure and policy count are reduced. And, the impact of unintentional and periodic rate competition is severely minimized.

3.Mitigation–New risks would be inspected, photographed, and provided a checklist of the improvements or repairs necessary to obtain voluntary coverage. The FPPF would assist financially challenged policyholders with separately created government-sponsored mitigation loans, if any, and provide other assistance to prepare structures for coverage in the admitted market. Other, not yet implemented state mitigation incentives or requirements would apply as well, i.e. home or structural wind grading system. I could envision it becoming more efficient for all state mitigation efforts to be centralized and coordinated under the FPPF, as well.

4.Length of Coverage–Coverage would only be provided until the FPPF located an insurance company willing to insure the risk, until the policyholder voluntarily terminated coverage, or until the third renewal, whichever comes first. However, the FPPF board, for hardship or unusual cases as mentioned above, could grant one-year or unlimited coverage extensions. It's likely, for example, that some risks (perhaps for perils other than wind) would need continuous coverage in the FPPF. However, because the emphasis is on mitigation and how to gain coverage from the voluntary market (instead of providing continuous coverage "as good as" the voluntary market), Florida would be more likely to have only "unmitigatable" last resort properties in its last resort insurer.

5.Non-Competitive Rates–Of course, any gains from this approach are wiped out unless every risk pays a premium with the residual market that is higher than the admitted market. The previous "average of the top 20″ approach was a complete failure in achieving a non-competitive rate. Therefore, the FPPF rate, for each risk it insures, should be indexed higher than the "highest approved" rate for the admitted market. This contemplates the FPPF being able to immediately implement premium surcharges on individual risks, or categories of risks, based on accurate market reconnaissance from available sources, including carriers, agents, the Office of Insurance Regulation, and FMAP.

In Summary

I understand the concept is radical, particularly when compared to the current approach of Citizens being a full-market competitor. But I would urge those with a tendency to react negatively to avoid doing so. Remember that any restrictions or burdens, whether real or imagined, create few hardships for Citizens' current constituencies, including agents, carriers, brokers, and E&S markets. This is because nothing happens until the trigger event, which theoretically is after policies are mostly written voluntarily and free from competition with the subsidized state insurer. Under the FPPF approach, business would only flow to the insurer of last resort, only as a last resort. That's as it once was, and, with the FPPF…as it could be again!