Karen Holt, Director. Actuarial & Underwriting Committee

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Linette Wilkinson
6 years ago
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1 Karen Holt, Director

2 Executive Summary Over the past 8 months, Citizens Staff and Board have made several rounds of non statutory product changes intended to offer a more basic level of coverage under Citizens policies, in line with being insurer of the last resort. A summary of the changes approved or currently in progress is attached (Attachment 1). In addition to those initiatives, the 2013 Annual Rate Filing will include a number of other product changes, some of which are changes to our products and contract language already approved at the A&U Committee and Board Meetings on November 30, 2011 and April 12, 2012 (Attachment 2). The 2013 Annual Filing will also include the details regarding gcertain previously approved product change recommendations as outlined in the next section, and a few additional recommendations being proposed today. Personal Lines 1) Revise Contract to Reduce Exposure to Water Losses (PRM) Implement sublimit of $15,000 due to multiple causes of water loss, including accidental discharge & overflow of water or steam, plumbing leaks & back ups. 2) Increase Minimum AOP Deductible (PRM) After detailed review, Staff recommends maintaining the current $500 minimum deductible. Already over 60% of Citizens policyholders choose a $2500 AOP deductible and another 36% choose a $1000 deductible for HO 3 and DP business (Attachment 3). Given this distribution, changing the minimum AOP deductible would have limited benefit. Additionally, there is a question as to whether this is permitted by statute. Because policyholders have shown interest in higher deductibles, Staff proposes introducing higher AOP deductible options of 1%, 2% and 5%. 2

3 Executive Summary 3) Implement Loss History Surcharge Recommendation to Defer The OIR has provided an interpretation which suggests that a loss history surcharge may be subject to the glide path. An effective loss history surcharge program would require a prior loss history report for new business, which requires a solicitation and also requires more IT effort to implement. Additionally, it s currently unclear as to how new business rates will be implemented. Given the current outstanding issues, Staff recommends deferring this program to a later date. Commercial Lines 1) Increase Minimum AOP Deductible (Attachment 4) Increase the minimum AOP Deductible from $1000 to $2500 for all Occurrencebased policies and Calendar Year policies with higher valued limits (CRM). Eliminate i t the $1000 minimum i Other Wind/Hail il (OWH) Dd Deductible and replace with 1% minimum; also, introduce 5% and 10% Other Wind/Hail Deductible options (CRW). Introduce an optional 10% Hurricane Deductible (CRM, CNRW). 2) Remove Class B and C Opening Protection Credits (CRW/CNRW) Recommendation to Defer Removal of credits is subject to the glide path, therefore there s no premium benefit. Implementation p would require introduction of capping logic which is not practical in current systems; will reevaluate feasibility with transition to Core. 3

4 Executive Summary In addition to the recommendations already made, Staff is proposing the following new recommendations to include with the 2013 Annual Filing: Personal Lines 1) Implement contract changes to better manage sinkhole loss exposure Introduce definition of rebate to support statutory prohibition against rebating. Update existing damage exclusion to better address damage that occurred prior to policy inception and to clearlyexcludeexclude whether or not the damage was visible. Implement language allowing proportional exclusion if loss is partially caused by earth movement. Introduce language to limit coverage to that which is required by statute. 2) Amend co insurance provisions to improve clarity and enforceability (PRM/PRW) 3) Implement joint obligations language for insured, acts and failures of one insured will be binding on all insured s for liability coverage (PRM/PRW) All Lines 1) Additional contract changes that are of a maintenance nature which either clarify intent or address incidental loss exposures (Attachment 5) 4

5 Executive Summary Recommendation Staff requests that the Actuarial and Underwriting Committee approve and recommend to the Board of Governors approval of the foregoing and attached set of changes, and provide authorization for Staff to making filings to support these changes. 5

6 Attachment 1: Changes Approved and Implemented/Pending Implementation Personal Lines Effective 2/1/2012 New Business; 5/1/2012 Renewal Business Decrease maximum coverage in Coastal Account to $1M Effective 3/1/3012 New Business; 4/1/2012 Renewal Business Expand sinkhole inspection to additional 12 counties (total 16 counties) Effective 3/1/2012 New Business; 6/1/2012 Renewal Business Discontinue Builder s Risk Effective 5/1/2012 New Business; 6/1/2012 Renewal Business Implement mandatory 10% Sinkhole Deductible Eliminate i Personal Liability increase limit i ($300,000) 000) Eliminate option to schedule individual Coverage B items Eliminate increased mold options: Property and Liability Eliminate increased Loss Assessment Coverage of $2,000/$3,000 (HO 3) and $3,000 (HO 6 types) Change Coverage B default to 2%, roll back in force and require re election of higher limits Change Coverage C default to 25%, roll back in force and require re election election of higher limits Effective 9/1/2012 New Business; 10/1/2012 Renewal Business Revise guidelines to require 30+ year old homes have a 4 point inspection showing the electrical and plumbing systems have been updated and are in good working order Eliminate optional endorsement for Permitted Incidental Occupancies (business use at residence premises) Effective 1/1/2013 Renewal Business Implement sinkhole reunderwriting program for existing business; start with Hillsborough County and phase in. Commercial Lines Effective 3/1/2012 New Business; 6/1/2012 Renewal Business Discontinue Builder s Risk Effective 5/1/2012 New Business; 6/1/2012 Renewal Business Eliminate coverage for all Special Class Items except for in ground pools and masonry fences, for business other than condominium associations Eliminate Business Income and Extra Expense Coverage 6

7 Attachment 2 Changes Previously Approved by the Board and Being Filed As Approved Personal Lines Introduce an HO 8 Policy pursuant to Section (6)(c)1.g. Fl. Statutes (PRM) Restrict Ordinance & Law to apply only to Coverage A (PRM/PRW) Eliminate coverage for losses caused by dropped objects (PRM) Expand vacancy penalty to further restrict coverage and address additional occupancies (foreclosures, unattended seasonals) (PRM/PRW) Eliminate liability coverage for incidental exposures related to auto, watercraft and animals (PRM) Expand sublimit for high value personal property (jewelry, furs, guns, silverware) to all perils (PRM/PRW) Revise contract tto reduce exposure to water losses (PRM) Introduce exclusion for roof leaks and other losses resulting from rain that are not caused by wind or weather Commercial Lines Eliminate Coverage Extension for Increased Cost of Construction (Ordinance & Law) (CRM/CNRM) Introduce Sub Limit for Mold (CRM) Implement Mandatory 10% sinkhole deductible (CNRM/CRM) Reduce Debris Removal from $10,000 to $5,000 (CRM/CNRM) Implement exclusion for losses where damage is only to exterior paint damage (CRM/CNRM) Implement separate Hurricane Deductible for business personal property (CRW) 7

8 Attachment 3 Current Personal Lines AOP Deductible Distribution HO 3 AOP PIF Distribution % Avg Cov. A 500 6, % 163,925 1, , % 173,656 2, , % 229,671 Total 587, % 211,964 DP1/DP3 AOP PIF Distribution % Avg Cov. A , % 64,930 1, , % 168,626 2, , % 215,809 Total 281, % 177,751 Total HO 3, DP1, DP3 AOP PIF Distribution % Avg Cov. A , % 83,131 1, , % 171,647 2, , % 226,732 Total 868, % 201,273 8

9 Attachment 4 Commercial Deductible Changes CRM: Increase Minimum Deductible from $1000 to $2500 Items Impact (exposure reduction) Policies with Occurrence Hurricane Deductible 2,567 $3,850,500 Policies with Calendar Year Hurricane Deductible 9,739 $14,608,500 Total 12,306 $18,459,000 NOTE: Policies with lower coverage limits and Calendar Year Hurricane deductible will retain $1000 deductible due to interaction of AOP and Hurricane Deductible impact (not included in exhibit). CRW : Increase Minimum $1000 Other Wind/Hail (OWH) Deductible to 1% (Subject to $1000 minimum, already in place) Property Value item Item Count Current Deductible Proposed Deductible (avg for range) Maximum Potential Impact (exposure reduction) 0 33,999 7,183 1,000 1, ,000 49,999 1,897 1,000 1, ,000 83,999 2,776 1,000 1, ,000 99,999 1,315 1,000 1, , ,999 3,447 1,000 1,329 1,135, , ,999 1,560 1,000 1,835 1,302, , ,999 4,056 1,000 2,627 6,598, , ,999 3,459 1,000 4,139 10,856,395, 500, ,999 4,979 1,000 7,157 30,656,203 1,000,000 4,999,999 5,708 1,000 22, ,607,663 5,000,000 9,999,999 1,536 1,000 72, ,156,574 10,000, , , ,149,745 Total 38, ,462,560 Current minimum deductible for hurricane deductible for CRW is 3% 9

10 Attachment 5 Additional Maintenance Contract Changes Clarify mortgagee clause to increase notification requirements for change in risk (vacancy or foreclosure) (PRM/PRW) Amend replacement cost coverage endorsement to clarify that carpet damage will be paid at ACV until proof of replacement is provided (PRM/PRW) More explicitly state that tear out and removal coverage only applies to property owned by insured (applies in condo, renter situations) (PRM/PRW) Clarify contract that water or vandalism damage caused by theft or concurrently with theft are not covered (applies to named peril policies without theft coverage) (PRM/PRW) More explicitly state that deductible does not apply to loss assessments (PRM/PRW) Clarify contract to more explicitly state that exclusions include septic tank back up and other external causes of water loss (PRM) Update Property Not Covered endorsement to more clearly state contracts to which it is applicable (CRM/CNRM) Edit policies to improve consistency in the terminology used to describe covered property (All Lines) Amend contract language excluding damage by vermin, birds, rodents to clarify intent (All Lines) Clarification and update of contract terms to improve consistency and more closely match industry standards (All Lines) 10

Citizens Depopulation To-Do List

Citizens Depopulation To-Do List What properties would Citizens likely need to cover as the Insurer of Last Resort? Coastal Properties Older Homes Older Mobile Homes A Portion of Policies in Sinkhole Prone