More lawmakers sign on to bill forcing higher property insurance rates

A bill to shrink Citizens Property Insurance and allow all insurance companies to raises rates higher and faster cleared another committee in the Senate on Tuesday. 

SB 1770, backed by Sen. David Simmons, R-Altamonte Springs, is full of enticements long-desired by the insurance industry, along with proposals to make Citizens leaner.

The proposal is a massive insurance reform effort that targets state-run Citizens, but also includes potentially costly side effects for homeowners with private insurers.

It provides new options for insurance companies looking to charge higher rates, forces Citizens to increase rates and allows private insurers to access Citizens’ $6 billion cash reserves under favorable terms.

Some lawmakers from coastal areas expressed concerns about how the bill would impact the pocketbooks of their constituents, some of whom would see their rates jump if SB 1770 goes into law.

Sen. John Legg, R-Port Richey, said his constituents might see their rates triple under one of the provisions in the bill, which forces Citizens to charge “actuarially sound” rates.

Sen. Wilton Simpson, R-Trilby, also expressed concerns, saying that lawmakers needed to be careful about the financial side effects of raising insurance rates to high.

Simmons said he will work to address lawmakers’ concerns, but that something had to be done to address the high level of risk that faces the state if a major hurricane occurs.

“I will promise to work with those of you who have doubts,” said Simmons. “I can tell you that something’s got to be done.”

The bill cleared the Government Operations subcommittee on Tuesday and heads next to the full Appropriations Committee before a full floor vote.

Read more about the bill here.

@ToluseO

After series of scandals, Citizens Insurance president defends company before Cabinet

Citizens Property Insurance President Barry Gilway went before the Florida Cabinet on Tuesday to praise his team for steering the state-run company in the right direction.

The company—which has come under fire from Gov. Rick Scott and lawmakers for management troubles  and lavish spending after a series of Herald/Times articles—is hoping to repair its public image.

Gilway praised the company for beginning to shrink in size and reducing the level of risk. He also batted down criticism about the level of expenses and spending at Citizens, saying that the company’s expenditures are lower than most competitors.

Still, after criticism from Scott and others about corporate expenses on everything from alcohol to strippers, Gilway acknowledged that changes were going to be made.

Some Cabinet members were clearly disturbed by the history of scandal at Citizens:

“This isn’t a fraternity, these are professionals,” said Attorney General Pam Bondi. “What part of reasonable and appropriate (spending) did they not understand?”

Bondi wanted to know what Gilway was doing to discipline the employees who had abused the corporate card.

“I can only focus on what is going forward,” said Gilway, who joined the company last June.

The questions continued.

Scott: “How many people have corporate cards? Why do you have them?”

Bondi: “Many of these employees (with troubled spending histories) are current employees, correct?”

Gilway said they are conducting a study and looking at potentially making changes for the corporate cards (nearly one in five Citizens employees have them). He told Bondi that he didn’t think it was appropriate to discipline employees for what they had done before strict guidelines were in place.

Lawmakers consider bills to shrink Cat Fund, increase insurance rates

Property insurance rates could inch up faster under two proposals that were discussed this week in the Florida Legislature.

The proposals, HB 1107 and SB 1262, would shrink the state’s Florida Hurricane Catastrophe Fund, a tax-exempt fund that provides low-cost backup insurance for property insurers.

Shrinking the $17 billion “Cat Fund” to $14 billion over three years would likely increase insurance premium by an average of nearly 7 percent over that period, according to initial estimates by the Insurance Consumer Advocate. That would come on top of other annual rate increases that are often in the double digits.

Supporters of shrinking the Cat Fund say it’s a fiscally prudent move, since the fund would have to borrow money after a massive hurricane and doing so might be difficult under certain circumstances. That could lead to financial turmoil for the state, with many insurance companies going belly up. Such a scenario is very unlikely, since the bond markets could provide billions of dollars to cover a disaster but proponents are using it to push the urgency of the perennial Cat Fund bill.

“Without a firm foundation, no industry will be able to stand and without proper financial background, and the Cat Fund will not be able to pay the claims,” Sen. Alan Hays, R-Umatilla, who is backing the bill, said Thursday.

The committee took the Cat Fund provision out of a larger, comprehensive insurance bill last month, because of fear over the “rate shock” it could cause. But Hays resisted and filed his own bill to shrink the Cat Fund. A similar bill, sponsored by Rep. Bill Hager, R-Boca Raton, was workshopped in the House on Wednesday.

“The reality is that Florida is one storm away from major fiscal devastation,” Hager said in a statement. “I’m pleased that we were able to begin the dialogue today in the Florida House and look forward to this bill being heard by all of my fellow legislators.”

After firings of internal investigators sparked controversy, Citizens Insurance hires new forensic unit

Citizens Property Insurance Corp., which came under heavy scrutiny last year for firing four internal investigators who had discovered evidence of executive misconduct, has announced that new forensic accountants have been hired to root out fraud.

Citizens has hired three forensic professionals, forming a team that Joe Martins, the company’s Chief of Internal Audit, says will “provide an unprecedented level of internal oversight.” 

The abrupt disbanding of the Office of Corporate Integrity last year raised eyebrows, especially after the Herald/Times unveiled documents showing that the investigators had drafted an explosive report shortly before being ousted.

The report included evidence of large severance packages for disgraced employees, mishandled internal investigations, altered documents and a number of embarrassing workplace mishaps.

Citizens claimed that the firings were part of a restructuring effort, and the company announced Friday that the hiring of new forensic professionals is part of that effort.

Gov. Rick Scott said the OCI firings “concerned” him and asked his Inspector General to investigate last year. The report on that investigation, which follows another investigation into excessive travel spending at the state-run insurer, is expected to be released soon. In addition to the two inspector general reports, Citizens has come under fire for giving out large raises to executives, failing to negotiate large contracts and inadvertently giving away $2.5 million to another insurance company (the money has since been recouped).

Yesterday, Scott said he was “very disappointed” in what is going on at Citizens and he has asked the executives to return the large raises they received last year. Citizens said the raises were necessary to help the company compete with the private insurance industry, where compensation is higher.

The company's board is expected to address the salary issue at its next board meeting, but it's unclear if the executives will follow Scott's orders and return the money they've already received.

Citizens’ press release is below.

Bill to shrink Citizens—and hike rates—passes first committee

Update: After more than a dozen amendments, a bill to shrink Citizens Property Insurance Corp. received a near-unanimous vote in its first committee. The only Senator voting against the measure was Sen. Jeff Clemens, D-Lake Worth.

Sen. Alan Hays, R-Umatilla, a former dentist, described the bill as a shot that a patient takes before an operation. He said it may be somewhat uncomfortable (with higher insurance rates) at first, but will be worth it in the long run by reducing the exposure of the state.

A bill brimming with enticements for the private property insurance industry—and forcing homeowners to pay higher rates to reinvigorate an apathetic market--gets its first full hearing in the Senate Banking & Insurance Committee on Thursday morning.

The proposal, SPB 7018, is a massive insurance reform bill that targets state-run Citizens Property Insurance Corp., but also includes costly side effects for homeowners with private insurers.

Several proposals within the bill allow insurance companies to jack up rates higher and faster, while giving them access to Citizens’ $6 billion cash surplus and the company’s most lucrative policyholders, who would be kicked out of state-run insurance under the bill.

Below are a few proposals within the SPB 7018 that could hit homeowners’ pocketbooks as they prepare to renew their insurance policies in 2013 and 2014.

Citizens releases laundry list of internal complaints

Citizens Property Insurance, which came under intense scrutiny last year when it fired four corporate investigators, released a report to show that it has not broken the rules when it comes to corporate integrity.

According to a review of 474 cases investigated since 2008, “all complaints were addressed and corrective action taken in accordance with Citizens’ policies in place at the time.” 

Citizens released information about the 474 cases of internal misconduct allegations ranging from sexual harassment to misuse of funds to falsified documents. Citizens Office of Corporate Integrity had investigated many of the allegations, but that office was abruptly shut down last year. The abrupt firings sparked backlash from top lawmakers, after the Herald/Times reported that the investigators had discovered evidence of misconduct by Citizens’ highest executives shortly before they were fired.

Gov. Rick Scott’s chief inspector general is looking into the firings after the governor said he was concerned about the “appearance of impropriety.”

The document released by Citizens is long, but it’s filled with case file information from workplace scandals at Citizens. The document reads like a laundry list of sexual affairs, corporate corruption, workplace pornography, discrimination, theft and other allegations. One case summary references an employee who regularly used his corporate credit card at what appears to be a strip club.

“The preliminary review of outstanding charges disclosed that employee had purchased alcohol on at least six separate occasions and entertainment at an adult entertainment establishment,” the report reads. The employee resigned in 2011.

Citizens is looking to reform itself after a series of scandals last year reported in the Herald/Times, including lavish executive spending, drunken exploits on company retreats, $2.5 million in overpayments to an insurance company and the abrupt disbanding of the Office of Corporate Integrity.

Announced reforms include new restrictions on travel spending, tougher standards for private contracting and new rules for company execs. 

Here’s a copy of the 474 complaints.

Here is the full release from Citizens:

Associated Industries releases legislative wishlist, punts on Medicaid expansion

Associated Industries of Florida has released its list of legislative priorities. The business group’s wishlist covers a wide range of issues on the table for the 60-day legislative session beginning Tuesday: taxes, healthcare, education, insurance, regulations, energy and the environment.

Read the full report here:

Here a few highlights from the 24-page report:

- On Medicaid expansion, AIF punts like other business groups have done—opting not to take a ‘Yes’ or ‘No’ position. AIF does appear to move closer to Gov. Rick Scott’s position than other groups, stating that rejecting the federal money associated with the expansion would be tantamount to giving it away to other states.

- AIF supports Scott’s push to eliminate the sales tax on manufacturing equipment and phase out the corporate income tax by increasing the exemption to $75,000

- AIF agrees with Scott on spending more for transportation infrastructure, including ports and airports. It opposes any sweep of Transportation Trust Fund.

- AIF supports loosening restrictions on certain tax incentives for businesses. It does not weigh in on some of the Republican-led efforts to increase transparency and accountability for incentives.

- AIF supports using $200 million in Sadowski Trust fund money for affordable housing and opposes plans to sweep that money. Scott wants to use only $50 million for affordable housing.

- On gambling, AIF has taken a much more muted position than last year, when it threw its weight behind a push for three casino resorts in South Florida. Since that measure by Genting failed last year (and has not been revived for this session), AIF is only pushing for a “rational and comprehensive statewide gaming policy.”

- On property insurance, AIF supports higher rates at Citizens and a smaller Catastrophe Fund, which could lead to higher rates for other insurers.

- AIF supports measures for Florida to consider offshore drilling.

- AIF continues to push for new laws requiring all online retailers to collect sales tax.

Read the full report here:

@ToluseO  

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Biz group releases Citizens Insurance map, hoping to get lawmakers to act

Biz group releases Citizens Insurance map, hoping to get lawmakers to act

Hoping to convince lawmakers to make significant reforms on the politically thorny issue of property insurance, a business group has released an interactive map showing legislators how many of their constituents are covered by Citizens Property Insurance.

The idea is to get lawmakers to realize that, in most cases, the majority of their constituents get coverage in the private market, not from government-run Citizens. That realization would theoretically make it easier for lawmakers to back legislation raising rates at Citizens.

“This is the first time we’ve looked at the data this way and it’s very telling. More than two-thirds of residents in a majority of Senate and House districts don’t have Citizens as their property insurer,” said Associated Industries of Florida president Tom Feeney in a statement.

AIF is pushing for major reforms, many of which will lead to higher insurance rates for property owners covered by Citizens, and potentially for those covered by private insurers as well. AIF says the threat of those "hurricane taxes" is bad for business. Citizens, the largest insurer in the state with 1.3 million policies, covers about 23 percent of the market.

If the company—which is running a record surplus—ever runs out of money after a massive monster hurricane, it might have to levy “assessments” on Florida consumers to make up the shortfall. Federal and state taxpayers may also pick up some of the tab, as has happened in the past after devastating storms.

Property insurance has been a tough political football because of the pocketbook impact it has on homeowners. In places like South Florida, where Citizens dominates the market, the typical family spends about 5 percent of its income on property insurance, much higher than state and national averages.

Those homeowners are very vocal come election time, so Republicans in South Florida and other high-cost coastal regions have been wary of voting for business-backed insurance bills in the past. Democrats have joined those wary Republicans to kill bills that the insurance industry wants and this year the minority party has made keeping insurance costs down part of its platform.

Scott: Citizens execs should return 'outrageous' raises

Gov. Rick Scott blasted top executives at Citizens Property Insurance for “foolish” behavior Wednesday, calling on them to give back large pay raises they received last year.

“First off, they have these outrageous pay raises,” Scott said in an interview “They ought to give that back. Those ought to go back.”

The raises, first reported by the Herald/Times, came as the state-run company was increasing homeowners’ insurance rates and scaling back coverage. Scott said no one told him about the pay hikes—which were as large as $31,000—and made it clear that he did not approve.

Citizens has been through a number of controversies in the last year as news of the company’s spending habits has come to light. Expenditures unearthed by the Herald/Times, independent auditors and Scott’s chief inspector general include gourmet dinners, alcohol, international travel and stays in $600-a-night hotels.

A Citizens spokesperson said the company will "revisit" its board-approved compensation plan and "make a revised recommendation at the March meeting."

In a Wednesday opinion piece in the Bradenton Herald, Citizens’ board chairman Carlos Lacasa said that the company has “sound internal governance” and the raises were merited due to increased responsibilities and comparisons with the private insurance industry.

"The raises also followed three straight years of no merit raises and were accompanied by a decrease to benefits in the form of increased health insurance premiums and higher co-pays,” Lacasa wrote.

Scott said that his staff had heard Citizens’ rationale for raising the salaries, but he remained critical of the pay increases, which went out to some of the highest-paid execs at the state-run insurer. Employees at state agencies have not received a raise in six years.

On several occasions, Scott made mention of executives’ use of the corporate credit card to buy alcohol, including purchases brought to light by Chief Inspector General Melinda Miguel.

Citizens responded to Scott’s inspector general by saying that Lacasa had reimbursed the company for $300 in alcohol purchased at a company dinner last June. Receipts obtained by the Times/Herald show that seven or eight officials at Citizens ordered about $369 of red wine and Grey Goose Vodka during a $918 dinner at Orlando’s Ocean Prime restaurant.

“We shouldn’t be reimbursing them for alcohol,” Scott said. “This is a state organized entity. It shouldn’t be any different.”

As insurance premiums rise, Citizens execs get big pay hikes

When the president of Citizens Property Insurance Corp. learned that his chief financial officer had used corporate funds to finance a luxurious weekend at a $633-a-night resort in Bermuda, he initially described the expenses as “absolutely appropriate.”

But President Barry Gilway changed his tune after a Herald/Times story and a subsequent inspector general report documented evidence that executives regularly ran up huge expenses on the company credit card, traveling and dining at four-star locations across the globe.

“As guardians of public funds, we must hold ourselves to a more rigorous standard,” he said.

It was a full-throated mea culpa, following sharp rebukes from Gov. Rick Scott, state Chief Financial Officer Jeff Atwater and top lawmakers. But behind the scenes, Gilway was quietly handing out huge salary raises for the well-traveled CFO, Sharon Binnun, and several other executives who run the state-backed company.

Read more here: 

 

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