Do you have Windstorm and Flood Coverage? If not, you may end up with Citizens and the NFIP!

We are told there will be ten (10 ) hurricanes in 2018 of which four of them will be a category 3-5.  And when admitted insurers (regular insurers that have a high BESTS rating and are admitted in a state) will not write your insurance you must depend on Citizens Security Insurance Corporation


Citizens Security Insurance Corporation – is it really the savior of the Florida Voluntary Market.?   I certainly hope it is better today than when I lived in Sunny Isles.


I have been through the hard market (where premiums are high, because there is less capacity to write more business because the surplus for future losses is much lower than that of written premium which is not earned, causing the insurer to have less capacity) and the soft market (where insurers are attempting to secure every piece of business to increase their written premium because of a high policy holder surplus), but I have never experienced what is now transpiring in the State of Florida.


Citizen’s was formulated in 1992 following Hurricane Andrew’s catastrophic damages to South Florida.  The purpose was to allow the public to obtain coverage in the voluntary market and to be eligible, an insured must be unable to receive an offer of insurance from an authorized insurer (one authorized by the State of Florida under a certificate of authority to operate as an insurer domiciled in the State of Florida).   Those insurers not authorized to operate in the state of Florida, may still write insurance by exception if they are performing transactions pursuant to the surplus lines coverage laws or if they are a re-insurer, or captive insurer.


Since my background pertains mainly to that of commercial insurance, I apologize if I am not addressing the issues that pertain to the actual homeowner. And, I welcome any comments that you may be able to make of your own personal experience.   Nevertheless, in the short duration since I have entered the marketplace in the Florida, I have seen situations that make my blood boil.


It is stated that Citizens was required by reason that many insurers went out of business or others were forced to cut back policy writing, after Hurricane Andrew.  In lieu of the government, whether or state or federal, subsidizing those insurers to assist them in remaining in the state of Florida, instead, many of these large insurers left the state.  Many valuable underwriting talents, likewise, left Florida with that exodus,   Even the Federal Government’s National Flood Insurance Plan, allowed for some subsidization so that the average Citizen could afford flood insurance, whether necessary for a regular or emergency flood zone or if required by the mortgagee to finance a home or business purchase.


Further to add to the dilemma, there is less reinsurance capacity (those insurance pools which provide insurance in excess of certain premium losses or a certain premium point at which an insurer may require additional capacity, to conduct normal operations and remain in business).  We lost re-insurers after 911 and now many have disappeared with the other natural disasters (hurricanes, earthquakes and fires)


Florida is a beautiful state and because of its climate, brings forth many individuals of a different age, but mainly, many people look to Florida as their retirement home.   Since, I have some experience in the condominium arena I hope that you will not mind if I utilize that area to explain my frustration with the existing insurance market pertaining to Citizen’s.


Let’s for instance utilize the Condominium arena for an example of how Citizen’s works.  The premiums paid to Citizens are on an upward spiral as are the assessments that are attached to each policy.  Not only are the admitted insurers assessed (no wonder insurers left the state and others are unwilling to return, with the large assessments they would face.)  It would not be conductive of an expedient business practices to knowingly enter the State of Florida as a domestic insurer today.  After all, in the State of Florida, not only are the insurers assessed, but you, the policy holder, on each and every policy.  And, that assessment is growing tremendously high.


For condominiums, these assessments amount to thousands of dollars, which the unit owners ultimately pay.  So now, not only are you taxed heavily, but you are also paying assessments, like an insurance company, assessments to assure Citizens has sufficient monies to pay losses and to be fully funded.  Again, where is the state or federal backing.  No citizens of any state that I am familiar with has been assessed as highly as those citizens in the State of Florida.


Now let’s look at it from an independent agent’s standpoint.   You are and have been providing insurance to your various condominium clients for several years.   You are a professional and wish for your client to have the best possible coverage at the best possible price.  Insurers domiciled in the state are now are moving away from those buildings which are built of frame or joisted masonry construction and in some cases, not desiring some masonry non-combustible construction that is not wind resistive.   So, if you are on the east side of I-95 in Miami, and other designated areas, if you are in a fire resistive constructed building,  you write a special perils, excluding wind policy with an admitted insurer.  You may then secure the wind and hail perils coverage from Citizens.   The Citizens policy, however, may not be written at the same effective date as your admitted insurer’s policy, and I will explain why a later paragraph.  The only policy Citizen’s will renew automatically is the wind coverage policy.


Citizen’s offers a basic perils coverage for those outside the wind pool, or for those who cannot secure insurance through an admitted insurer, including or excluding wind.  The basic perils include fire, lightning, internal explosion, sinkhole collapse, riot, riot attending a strike, civil commotion, aircraft and vehicle damage, smoke and volcanic eruption and windstorm and hail.  Your insurance agent will then secure a difference in conditions coverage to provide the Special coverage excluding Flood and Earthquake perils.


Again, for those qualifying for coverage through an admitted insurer, special coverage may be provided excluding wind.  The wind and hail perils, then are secured through Citizens in the Wind pool for those areas east of I-95 in the Miami area and special designated wind areas.


One of our clients was insured through a non-admitted insurer for special perils including wind and hail.   Citizens was quoted and it was found that a basic perils and a wind policy could be written to save the client substantial money, and yet be written with an admitted insurer, Citizens.  The agency quoted both policies on rating software similar to that of Citizens. And because Citizens rulings did not allow for specific credits, (we’ll get to that later), one of the policies developed what Citizen’s calls a “deficit” invoice or an additional premium due.


As long as the submission, which consists of a signed application, various forms, pictures and an appraisal, is sent with at least 80% of the premium, the policy will be written, subject to a 10-30 day deficit invoice date by which to pay the balance of the premium.   If under 80%, the same deficit invoice is sent to the agency and the client.  (Citizens are considered directly billed to the client, and not included under agency invoice).  This payment must be made immediately or the client will be considered cancelled for “non-payment”, in the eyes of state law.


Most condominiums today face many expenses so their premiums are paid through financing.   Let’s go back to that client who wished to write the policies with Citizens in lieu of a non-admitted insurer.  The client initially financed the non-admitted carrier’s policy along with other lines of coverage under one finance agreement.  Another finance agreement was drafted for the Citizens policies, once they were submitted to the company.   The Agent was required to secure the additional funds under the existing Citizens policy to fund the new deficit additional premium because certain credits which normally would have been available were not allowed by Citizens.  One policy went through.  The initial policy premium of the wind policy, required the deficit to be paid.  Although the premiums were forwarded to Citizen’s on the date specified as the cancellation date of such deficit, coverage was not providedCitizen’s will hold the initial check submitted with the application for five days after the cancellation date (the date shown on the deficit invoice).  Thereafter their accounting department then returns all the money to the client and there is no insurance.  The agent attempts to contact Citizen’s, advising that he or she is in possession of an overnight express delivery evidence stipulating that the premium was received one day before the due date.  The agent is then advised, by Citizens, that the check was not received in time by underwriting, ignoring all rules pertaining to coverage being effective the date after receipt in Jacksonville.   Now the rule is interpreted as the day after receipt by the underwriter, whichever underwriter that may be.


With most insurers, one then would be able to speak to the Citizen’s accounting department to apprise them the second check was received in their office in (its receipt is on the internet log.).  At Citizens, however, you are not allowed to speak to anyone in their accounting department.  So, you ask the underwriter.  “Is it possible to secure the initial check so that this policy does not cancel?”  The underwriter may then tell you that the check has already been returned to the client.  Another underwriter, on the next day  may say that they are not allowed to advised the accounting department.  But my latest Citizen’s underwriter took the cake!  He told me with a very matter of fact attitude that there were a million policies to handle at Citizen’s and that underwriting did not have time to call accounting on each one of them.  Well, that does not say a lot for Citizen’s if all million policies have such difficulties.  Then, someone at the state should take a serious look of how Citizen’s is being handled. And, no, one may not speak to Citizen’s accounting department.


Let me explain what happens next.  You advise your client that the initial check will be sent back to them by Citizen’s and that they must return it to Citizen’s by a specific date so that the deficit date on the second check, will not constitute another cancellation, or delay in issuance.  In the meantime, your client has not received the Citizen’s return after one week, so the agent again contacts Citizen’s who apprises you, well, it wasn’t sent yet, it was just sent out two days ago  


Now it has been over two weeks since the check from Citizen’s supposedly went out and the client has still not received it.  So you contact Citizens again and suggest that perhaps a stop payment needs to be sent, because your client has not received the checkYou are then told that a stop payment may not be made until after 30 days from the date the check was sent.  Yet, you never know when the check was sent because every time you contact Citizen’s, someone gives you another story of when it is sent.


Since the client has financed the premiums, the client cannot afford out of pocket money, so the client may not make that payment directly out of association funds.  Then the date arrives where the second check was returned, and the first check finally has shown up and has been returned, and the vicious cycle appears again.  And, on the internet, the only thing the underwriter places for comment is that agent of record called for a stop payment.


The agent then explains the entire scenario by phone and in writing to the Citizen’s underwriter.  You plea for the wind coverage policy to carry the same effective date as the other policy written by Citizen’s for concurrency of perils. You are advised that a senior underwriter will take it under advisement, and comments will be placed on the site.  The internet site, however, shows comment only that agent desired to know the effective date.  Note that the original effective date should be held because the deficit was received in time in accordance to the rules.  As a result of this scenario, which happens only to frequently, the client had duplicate perils coverage for all except wind and hail, the non-admitted insurer’s policy could not be cancelled.  And the underwriter at Citizen’s finally decides to write the second policy with an effective date two months after the inception of the initial policy.  The non-admitted insurer’s policy then as a result could not be cancelled until two months, after the initial policy was issued, causing extra expense for all members of the association through no fault of the agent.


On one policy, Citizen’s  did not include wind and hail coverage on a multi-peril policy, through no fault of the agent or the paperwork provided Citizen’s.  Citizen’s did not comply with the requests of the agency as soon as it was noted the policy did not include wind and hail.  Instead, Citizen’s returned all the money to the finance company, which paid up the agreement including various policies in full.  And after the financing was paid, the insured even received an additional return.  After four months of apprising Citizen’s of their error, an endorsement was finally issued adding the perils of wind and hail.  This additional premium was almost a half a million dollars with only three months in which the insured was allowed to pay under the re-opened finance agreement.


Many problems revolve around the credits offered by Citizens.  Mitigation credits are supposedly in writing and based upon territory.  However, the agent yet has not received copies of these credits, nor information as to the percentages of credit given for HRA business(Condo buildings in excess of $10,000,000 in value), especially with respect to the 10% deductible.  The mitigation credits may be substantial based upon providing wind and loss prevention measures to your building.  But one area, for which there is a manual rule pertaining to credits for Sprinkler Systems seems totally unjustified in its handling.


When writing insurance with an admitted carrier, if your building was fully sprinklered, you would receive a credit.  If the Insurance Services Office, who inspects all commercial buildings over 15,000 square feet, stipulated the building was fully sprinklered but that the rates promulgated do not reflect sprinkler credits, a building would be loss controlled by the insurer to determine the problem.  Or the insured would be solicited to have the sprinklers maintained or fixed by written recommendation.  The credits for a sprinkler system usually remained on the policy, with an STR (Subject to Rate) endorsement applied.  When the final work was completed, if the sprinkler system could not meet the anticipated performance required, the insured then would then be charged the additional premium that was initially credited at the inception of coverage.


Citizen’s takes another approach.   As an agent you rate your client’s insurance including a sprinkler credit.  You submit the application, rating, photos and all other criteria to Citizens.  Citizen’s re-rates the policy and then stipulates, in accordance with the manual rules, the ISO (Insurance Service Office) has not made an inspection of the property to be insured.  As a result the credit may not be given until such inspection is performed.  The insured is then sent a deficit invoice for the amount of the sprinkler credit. You then ask Citizen’s. since they are the insurance company, if they have ordered the ISO inspection.   They comment that they haven’t done it as yet, or it should have been done, or that it will be ordered in the next 30 days.   By this time, the ISO is checking out various other commercial risks and the schedule may take the entire year.  Will the insured ever be paid back by Citizens for the Sprinkler Credit once the ISO finds it a valid sprinkler system?  We have yet to find out.  And, what is really interesting is that Citizens will not accept confirmation by the contractor of the sprinkler installation nor the maintenance agreements as acceptable evidence.


The condominium association in conjunction with the services of the Insurance agent may not only complete supplemental applications, but secure an appraisal each year.  The Citizen’s manuals allow for an appraisal 18 months, but essentially, after the 18 months is over, another appraisal must be in secured immediately, or you will be warned another is due to continue coverage.  So the condominium association might as well consider the fact that they will be required to provide new appraisals annually.  And because of the legalities involved, most agents, who are not experienced appraisers’ are required by Citizen’s to provide cost estimators, along with the contract that an appraisal will be accomplished, in order to consider writing coverage.  Agents do not need the liability of becoming appraisers and the appraisers are concerned with suits also, even though they have the experience and background.  And, in lieu of updating an existing appraisal, the appraisers who do not wish legal ramifications must schedule a new appraisal for a future period with the Association, rather than upgrading the existing appraisal.  This is an additional cost to the Association.  In fact, there is so much appraisal business required, that many of our clients are now advising us that a new appraisal will not be done for a year.   In the meantime, Citizen’s still requires the information, and for a short time, an agent may be on a limb by providing an old appraisal and cost estimator which has no credence whatsoever, but much liability.


I can understand the State of Florida formulating an insurer to assist the public in securing coverage with an admitted carrier, and to foster such mitigation credits to the existing book of credits, to allow the public to institute wind and hurricane protective buildings and glass.  It certainly could not have expected Citizen’s to run amuck and not follow rules and procedures that other insurers are required to follow in this very same state.


Dear State of Florida, how can you feel you are assisting your public when you have not secured sufficient federal funds to assist in subsidizing the high premiums paid in Florida..  How can you expect new insurance companies to enter the Florida marketplace when each of these carriers knows they will be subject to heavy assessments to fund this travesty of an insurance company?  How may you expect your citizens to remain in Florida when all that may be anticipated are exorbitant premiums and assessments for insurance coverage?  How can you not expect a multitude of bankruptcies, for those that no longer may afford their homes, or the dues and assessments that are required?.  Not only do some individual unit owners have limited budgets but are now faced with additional assessments not only for wind mitigation improvements to lower insurance costs, but also high dues for the premiums levied against them   And yet, if premiums are paid within the time listed on the deficit invoice, coverage may not be provided at the date requested because there is leeway among underwriters that allows them to act as deity and interpret rules each in a different manner.  


In addition to Citizen’s high costs, FEMA has hit the beach and is showing discrepancies to the initial flood elevations certificates issued.  This has constituted a battle and in some cases, FEMA’s elevation certificates did not include the fact that there were garage enclosures, which do not constitute as high a cost as a building built on a slab.   Today, we are fighting the lowest grade evaluations provided by FEMA, and when the fight has been exhausted, condo owners, may not only face the exorbitant premiums of Citizen’s, the costs associated with mitigating wind protective devices, but also paying flood premiums as high as in the millions to insure your buildings to the lesser of 80% of repair or replacement cost or up to $250,000 per unit.  And after all, which policy provides coverage for wind driven rain?  FEMA’s.  And, why have not claims been paid yet for some of the damages sustained by Andrew?  Because arbitrators must determine what the proximate cause of the damage are and what damage is attributed by wind driven rain and by wind and hail alone.  Perhaps the federal government should place together a combined flood, wind and hail perils policy or perhaps they could call it a natural disaster policy and include earthquake perils.  I must admit that the feds provided flood coverage through actual insurers who are called service companies.  The feds stick to the rules but if they error in such items, such as elevation certificates, they allow for a rebuttal.  Whereas, Citizens is their own company, not operated like any insurer you have ever met, who may make decisions outside of the realm of actual underwriting and of whose accounting department you shall never see.  The National Flood Insurance program also allows options for automatic renewal.  They send their renewal notices out in advance and allow for 30 days after the renewal date to pay the premium.   Citizen’s barely is able to write a policy and doesn’t even value their renewal business.


Karin for the blog


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