The tattooing of Florida with bad weather has left Citizens struggling with a crisis in servicing claims and a looming financial crunch.
By JEFF HARRINGTON
Published October 13, 2004
TAMPA - The last time the board of Citizens Property Insurance met as a group, the insurer was peacefully sitting on a multimillion-dollar cash reserve and Florida was enjoying a hurricane-free season.
That was 21/2 months ago. Four hurricanes and a tropical storm later, Citizens' board is in crisis mode.
Citizens, the state-run insurer for property owners who cannot find coverage on the open market, has too few adjusters to process claims; there's confusion over policy coverage; and a looming financial crunch could culminate in a special assessment on all homeowners next year.
Meanwhile, the organization is spending $100,000 a day running a 125-person "temporary" catastrophe center in Tallahassee that might be sorting claims for up to two years.
"We're in the first inning of a doubleheader here. Claims will escalate as we go along," Citizens executive director Bob Ricker told his board Tuesday during a four-hour session in a Marriott Hotel conference room at Tampa International Airport.
As a state-sponsored entity, Citizens offers a rare public glimpse into how Hurricanes Charley, Frances, Ivan and Jeanne were handled by the insurance industry.
Tuesday's dissection exposed plenty of concerns:
Because of evacuations as hurricanes approached, its claims adjusters lost 20 of the 47 days between Aug. 13, when Hurricane Charley struck, and Oct. 3, after the exit of the fourth storm, Jeanne.
Mistakes were common among newly trained adjusters, another factor slowing down payouts. Some workers, for instance, forgot to deduct emergency living expenses from claims checks; others were mistaken about deductibles.
Jessica Buss, Citizens' chief financial officer, said expenses for catastrophe response are quickly adding up - from hiring more adjusters to processing claims that don't pan out to redeploying a mobile response unit into hard-hit areas. If the company pays out $1.8-billion in claims, which one risk-modeling company has forecast, the cost to Citizens might jump an additional 20 to 25 percent, or nearly $400-million, once all expenses are added.
The Florida Office of Insurance Regulation, which has a high degree of input in how Citizens is run, warned in a letter that Citizens might have to help other insurers pay claims.
That's a direct result of Citizens' "depopulation" program, in which it pays private insurers a bonus for "taking out" policies from Citizens and putting them back in the open market. Companies receive the bonuses, typically amounting to hundreds of dollars per policy, after carrying the policies for a three-year commitment.
But if a company that has taken a policy out of Citizens cannot pay the claims from a catastrophe, Citizens' bylaws allow the companies to seek the bonuses early. Lisa Miller, deputy commissioner of the Office of Insurance Regulation, said Tuesday a couple of insurers have asked about receiving the bonus early but none have applied.
Early on, companies under contract to Citizens dispatched adjusters in a haphazard way, Ricker said. The same adjuster, for instance, might have been assigned to handle claims in different parts of the state following one storm's path.
In response, Citizens established its own system to dispatch adjusters, sort incoming claims, review files and analyze technical issues. "The storms forced us to become our own claims administrator," said Lou DiPaolo, Citizens' chief claims officer.
It's been a costly venture. Board member Edward London questioned spending $100,000 a day on rent and salaries at the temporary catastrophe center in Tallahassee.
"It's what the market is bearing right now," Netzel responded. Among other expenses, Citizens is paying desk adjusters at the center $400 to $500 a day while file examiners are earning $900 to $1,000 daily.
What's going on?
Citizens' board was supposed to meet in Naples early last month, but Hurricane Frances forced board members to settle for a conference call.
They came to Tuesday's meeting with questions.
How are adjusters determining whether cases of destruction were caused by wind and covered by Citizens or caused by flood, in which case a property owner would seek reimbursement through a separate flood policy? When is Citizens applying a double deductible, enforcing separate deductibles for insurers who file claims from more than one storm?
Answers were sparse. Typically, staffers said, such decisions are made case-by-case.
Citizens has received 98,000 claims from the four storms.
Ricker said homeowners can expect to get their claims checks within two to three weeks after an adjuster's visit.
Yet, two months after Hurricane Charley, Citizens has paid out less than $40-million in claims from that first storm out of a projected liability of $872-million from Citizen's high-risk account.
Ricker blamed the slow trickle of money in part on days lost during evacuations from subsequent storms and partly on an assumption that many snowbirds have yet to come to Florida to witness damage and file claims.
In other business, the board:
Approved a plan for newly formed Gulfstream Property & Casualty to take 120,000 policies out of Citizens, beginning with 75,000 by Dec. 1. Gulfstream would be eligible for a $14-million bonus after holding the policies for three years.
Supported plans to prevent property owners from getting a Citizens policy during hurricane season unless they are in the midst of a real estate transaction or have recently been dropped by their insurer. Prior to the first hurricane hitting Florida, Citizens received a rash of applications from property owners who did not have prior insurance.
"What we're trying to do is prevent people from gaming the system," Ricker said.
