Audit Finds Some Florida Citizens’ Policies Over Limit, Small Use of Clearinghouse

Florida’s state-created Citizens Property Insurance Corp., has a few issues it needs to address, including policies with coverage values ​​above its statutory limit, not sending enough renewals to its Clearinghouse, and failing to beef up its computer security measures, according to a state audit report.

The report by the Florida Auditor General’s office, required by law every three years, also agreed with Citizens leadership and other insurers that the carrier really needs to raise its rates to actuarially sound levels.

“To minimize the need for potential surcharges on Citizens policyholders and emergency assessments on assessable insureds, we recommend that the Legislature consider revisiting statutory rate limitations, specifically allowing for Citizens to collect from the rates the projected costs of reinsurance” to cover 100-year probable maximum loss, the auditors said.

In response, Citizens management said the corporation has taken or is taking steps to improve on most of the red flags noted in the report.

Here’s a look at some of the highlights of the audit:

Above the coverage ceiling. State law limits Citizens’ residential policies’ replacement costs to less than $700,000 in most of the state and to less than $1 million in those counties that have little or no competition from other insurers. But the audit found that for a small share of policies – 1,820 of 3.3 million policies written in 2021, 2022 and 2023 – Citizens allowed coverage to creep above the limit, as high as $906,500 for more than 200 homes with wind-only policies.

Citizens’ management blamed computer problems and staff oversight. The insurer’s computer system was designed to automatically alert staff when values ​​go too high. But at some point in 2023, that alert function was inadvertently disabled during a system update. Some policies were also overlooked while non-cancellation orders were in effect after a hurricane.

New procedures have been put in place and the problem has been fixed, Citizens spokesman Michael Peltier said. Policies that exceed the limit have been non-renewed or soon will be.

Under-utilized Clearinghouse. Citizens’ Clearinghouse is supposed to be a place where insurance agents and carriers can easily find new policy applications and upcoming renewals. But only six private insurance companies have participated in the Clearinghouse in recent years, the audit noted. Legislative action may be needed to ensure better use of the site.

Peltier said the number of participants has increased this year as the Florida market has improved, thanks to legislative reforms that have curtailed excessive claims litigation.

The audit, however, also revealed that about a quarter of the 2.7 million new and renewal policies in a three-year period were never sent to the Clearinghouse, anyway, meaning they were not shopped around to the primary market. Part of that was a deliberate decision by Citizens, the audit said.

“According to Citizens management, underwriting actions and system maintenance issues contributed to the policy renewals not being submitted to the Clearinghouse,” the report noted. “We recommend that Citizens’ management ensure that all applicable new and renewal policies are made available for consideration by participating insurers.”

Citizens’ response cautioned that processes must allow time for policies to be reviewed, manually canceled, non-renewed or reinstated by underwriters. Recent legislative changes, which bar renewals if comparable offers are made by primary carriers, should also improve participation in the Clearinghouse, Citizens said.

Satisfaction rates. The audit found that, for the most part, policyholders and insurance agents are satisfied with the service provided by Citizens.

Other points can be seen in the full report, here.

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