After series of scandals, Citizens moves to become more like a state agency

After a series of corporate scandals, Citizens Property Insurance Corp. is hoping to conduct itself less like a high-flying private insurance firm and more like a government agency.

Blasted by regulators, investigators and lawmakers for lavish spending on travel and meals and poorly negotiated contracts, Citizens has agreed to remake parts of its operation using government as a model.

The state-run insurer of 1.3 million policyholders announced Friday that it will begin to implement procurement policies and travel guidelines that mirror those used by other state agencies. The Office of Insurance Regulation rapped Citizens last month for de-emphasizing price negotiation as it gave out $604 million in contracts to private companies. As a quasi-governmental entity, Citizens has operated under separate rules from most of Florida's government.

Also on Friday, Gov. Rick Scott’s chief inspector general released a final report on the company’s spending on travel and meals. As part of the report, Citizens agreed to adopt travel policies that “more closely mirror” those that govern state employees.

 “Citizens is aggressively looking for ways to tighten its financial belt,” said Citizens President/CEO and Executive Director Barry Gilway, in a statement.

Citizens has long insisted that it is not a government agency and should not be held to state limits on travel and food spending. Auditors have questioned Citizens’ rationale for this position since 2006, but the company ignored those concerns. Last year, the Herald/Times documented how Citizens’ loosely defined travel policies have allowed executives to charge the company hundreds of thousands of dollars for luxury hotel stays, limousine rides and expensive dinners.

As late as December, Citizens executives were arguing that the company—which received $715 million from taxpayers, has the ability to levy “hurricane taxes,” and claims governmental immunity in court—was not bound to rules governing state agencies. After Scott’s inspector general drafted a scathing report, Citizens agreed to follow the state’s travel rules, which would ban many of the luxurious expenses company execs have become accustomed to.

Some of the expenses flagged by reporters and inspectors include:

- More than $1,000 for a limousine ride and personal chauffeurs/car service for Citizens’ interim president and CFO.

-$236 for six-hour “day-use” of a hotel in Zurich, Switzerland, for the company CFO.

-$454,000 for “car expenses” between January and August 2012.

-$539 per night hotel stay in New York for top officials

The company offered explanations for many of the expenditures in a response to the inspector general report but agreed that stricter policies were necessary.

Meanwhile, the company has pushed to raise rates on homeowners and slash their coverage.

Citizens has also faced scrutiny over allegations of misconduct among its top executives, some of who later resigned and got large severance packages.

After Herald/Times stories about Citizens move to fire four investigators who were looking into the allegations, Scott called on his inspector to probe the company again.

That probe is ongoing, but some lawmakers are already pushing for more scrutiny.

Bills filed in the Legislature and backed by Scott would define Citizens as a state agency for the purposes of having an independent Inspector General. Citizens is supporting the proposal.

“According to reports in The Miami Herald late last year, an internal audit brought to light issues at this company charged with being stewards of public funds,” said David Richardson, D-Miami Beach. “The firing of four auditors who were responsible for reporting these indiscretions and completely disbanding the Office of Corporate Integrity has led me to believe that officials at Citizens may think they can operate without accountability, which I find appalling.”

@ToluseO

Fasano calls Citizens president to testify, says company isn't following 2012 law

Rep. Mike Fasano was denied the opportunity to sit on the House’s Insurance and Banking committee, but the outspoken consumer advocate is still finding a way to get involved in the debate over property insurance.

As the chair of the Joint Administrative Procedures Committee, Fasano, R-New Port Richey, is requesting that the president of Citizens Property Insurance appear at the next committee meeting to answer some tough questions.

Despite a law passed last year that requires Citizens to offer a more basic (and usually cheaper) policy to homeowners beginning Jan. 1, the state-run insurer has not yet begun to do so.

“Effective Janurary 1, 2013, the corporation shall offer a bssic personal lines policy similar to an HO-8 policy with dwelling repair based on common construction materials and methods,” reads Fasano’s letter, quoting a law passed last year. “It is the Committee’s understanding that this requirement has yet to be implemented by the Corporation.”

Fasano wants Citizens president Barry Gilway and Insurance Commissioner to appear before his committee at its next meeting, on Feb. 19.

Big bill—and maybe higher rates—coming soon on Citizens Property Insurance

A massive, multipronged bill to reform Florida’s property insurance market could be introduced soon in the Florida Legislature, as influential committee chairs are determined to shrink Citizens Insurance and stave off potential “hurricane taxes.”

Sen. David Simmons, R-Altamonte Springs, said the Florida Senate and House will work on a major bill to fix the state’s property insurance market, encompassing several controversial ideas while trying not to cause “rate-shock.”

“We’re not going to pull the needle out of the arm of South Florida in one year,” he said. “We’re talking about being able to in fact provide a viable alternative to doing nothing. And that’s critical to us.” 

The statement came after the Senate Insurance and Banking Committee heard testimony from a number of pro-business groups, state officials and other stakeholders. Most groups had a similar message: rates at Citizens are too low and are keeping the private market from expanding. 

The bill to be introduced by the committee would likely encompass a number of different measures, including raising rates faster, shrinking the state’s Hurricane Catastrophe Fund and creating stricter requirements for homeowners seeking coverage from Citizens.

Insurance reform advocate comes to defense of Citizens' board

The director for the Florida Association of Insurance Reform has come out in defense of the beleagured board at Citizens Property Insurance, after a prominent lawmaker called for mass-resignations last week.

Jay Neal, the FAIR director who has not always agreed with the actions of Citizens, said boardmembers should be allowed to keep their positions, despite a number of controversies around lavish executive spending and corporate integrity.

Neal said the board has its flaws, but mostly has fallen into trouble when it followed the advice of Citizens staff.

In a letter to the editor, Neal pointed out that board members volunteer their time and are not paid.

“Service on the Citizens Board is no cake walk,” he said. “An equivalent position in the private sector would provide a six figure compensation package. The Citizens Board members work for free.”

See Neal’s letter below

Fasano blasts lavish spending at Citizens, calls for resignations

Citizens Property Insurance continues to be engulfed in controversy in the wake of a series of Herald/Times news reports detailing evidence of misconduct at the state’s largest insurance company. Now, a state Representative is calling for the “immediate resignation and replacement” of the company’s entire board.

After an inspector general report detailed excessive travel spending by company executives and board members, Rep. Mike Fasano, R-New Port Richey, said Citizens needs to clean house.

Fasano, a long-time critic of Citizens, said the board has been raising rates on homeowners while living large on the company dime, and all of its members should be ousted.

“Citizens is continually looking for ways to increase premiums, reduce coverage and push its customers out,” Fasano said.  “At the same time board members and executives are traveling literally around the world, staying at the finest hotels and dining on first class food, all at its customers’ expense.”

Fasano’s comments come on the heels of very strongly worded statements by Gov. Rick Scott and Chief Financial Officer Jeff Atwater blasting Citizens execs for their spending habits.

“Any egregious expenses, unethical behavior, or violation of the law must be grounds for dismissal,” said Scott, requesting tougher standards on spending and travel at Citizens.

Said Atwater: "this culture of excess and poor judgment is unacceptable, and Floridians deserve better.''

The report by Scott’s inspector general, detailing corporate spending abuses and lack of institutional controls, can be found here. Citizens remains under a separate investigation for firing corporate investigators that were looking into evidence of misconduct by top officials.

Citizens President Barry Gilway said the company would adopt stricter standards in response to the report.

Fasano's press release is below:

Citizens Insurance rate cap could go up to 13 percent

The chair of the Florida House’s Insurance and Banking Subcommittee floated the option of raising the cap on rate hikes on Citizens Property Insurance customers to 13 percent Tuesday.

Rep. Bryan Nelson, R-Apopka, said homeowners would be willing to pay an additional 3-percentage points if it would reduce the possibility of potential “hurricane taxes” after a catastrophe.

The cap, currently at 10 percent, has been in place since 2009, and followed a freeze on all rate increases under then-Gov. Charlie Crist.

Citizens President, Barry Gilway, speaking before the Insurance and Banking Committee on Tuesday said getting higher insurance rates is the most direct way to shore up Florida’s private market.

“We talk about the need to get outside competitors coming in, back in, to Florida,” he said. “And we’re going to be talking about many different approaches to depopulating Citizens. But creating a competitive marketplace in Florida, basically comesdown to creating competition.”

Gilway said Citizens has been undercutting the private market with below-market rates, but that the 10-percent “glidepath” on rate hikes should not be completely stripped because that would devastate parts of the state.

He said it is up to the Legislature to decide how large of an increase in rates should be appropriate. Gov. Rick Scott has agreed that Citizens is undercutting the market with too-low rates but has not weighed in with any specific proposals for how much rates should increase.

Nelson said he would be looking at raising the cap from 10-percent to 13-percent.

“I think (an additional) three percent makes a lot of sense,” he said, pointing to a statewide study showing support for the proposal.

For a homeowner with a $2,000 annual premium, it could mean an additional $60 or so in new annual costs. The proposal could face backlash from lawmakers in parts of South Florida and Tampa Bay, where insurance rates are highest.

Consumer group grades lawmakers for votes on insurance issues

A consumer advocacy group has released a report grading lawmakers for how they voted on property insurance issues last year.

The annual report card from Policyholders of Florida gives lawmakers ratings based on their votes on several controversial bills that could have pushed insurance rates higher for homeowners.

In the 40-member Senate—seven lawmakers received and ‘A,’ and 11 received an ‘F.’

In the 12-member House, 35 lawmakers received an ‘A’ and 63 received an ‘F.’

“Consumers don’t find out who their friends are during campaigns, they find out during legislative session,” said Sean Shaw, founder of Policyholders of Florida. “We track important insurance votes throughout the year so Floridians can see whether or not their lawmakers went to Tallahassee to fight for them or not – clearly many lawmakers are failing. We need lawmakers to focus on stabilizing the market for consumers and encouraging the responsible expansion of the private market in Florida.”

Outspoken critics of the insurance industry, like Sen. Mike Fasano, R-New Port Richey, received ‘A’ grades, while those pushing for industry-backed proposals and higher rates at Citizens Property Insurance Corp. got ‘F’ grades.

Many of the lawmakers receiving high grades are from South Florida and Tampa Bay, coastal areas where  insurance rates are the highest in the state.

Lawmakers from inland parts of the state and Republicans were more likely to have lower grades.

See the report card here.

Flores files bill to cap rates on Citizens Property Insurance

Sen. Anitere Flores, R-Miami, has filed a bill to put a limit on the rate-hiking power of Citizens Insurance’s Board of Governors.

Flores expressed outrage last year when the board said it would consider removing the traditional 10-percent cap on rate increases for new policies. (State law requires Citizens to limit rate hikes to no more than 10-percent each year, but it’s not clear if that also applies to new policies).

Flores—who called the idea "immoral" and vowed to block attempts by the board to raise rates on new policies by more than 10-percent—filed a bill this month that would clarify that the cap on rate increases applies to both existing and new policies.

Flores' SB 96 is the first bill filed to make changes to Citizens Property Insurance for the 2013 session, which could be a pivotal one for property insurance.

South Florida lawmakers are hearing from their constituents after perennial rate increases have made property insurance a top pocketbook issue. Insurance industry power brokers are pressuring lawmakers to push for higher rates and allow the private market to compete with Citizens. At the direction of Gov. Rick Scott, Citizens’ board of governors has taken up an aggressive mission of shrinking the size of the state-run company--leading to rate hikes, unpopular reinspections and coverage cutbacks.

Flores’ bill seeks to rein in the board by taking off the table the idea of higher rates for new customers (the board shelved the idea last year, but has indicated that it still may push for higher rates for some new customers).

@ToluseO 

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Add Miami-Dade mayor to chorus of South Fla. GOP'ers against uncapping Citizens insurance rates

Citizen's loan plan comes under fire at House hearing

A controversial program to shrink the size of the Citizens Property Insurance Corp. by spending $350 million to encourage private companies to take over business came under fire from all sides on Tuesday as the state-run insurer made its first appearance before a House committee.

The program, which would loan some of the company’s surplus cash to private insurers who agree to take over policies, is expected to be approved by the Citizen’s eight-member board of governors in the coming weeks.

“It’s worthy to spend a little bit of surplus in order to get risk off the books,’’ said Sharon Binnun, Citizens chief financial officer.

But the concept was derided by two legislators as “corporate welfare” and frivolous, and Chairman of the Insurance and Banking Subcommittee, Rep. Bryan Nelson, R-Apopka, raised doubts about the effectiveness of the idea after Citizens officials said the loan program has attracted only three companies out of a possible 20 that might be eligible.

“We’ve got to have more carriers involved,’’ Nelson said, who said he wants to see the plan revised to encourage smaller companies to take the loan incentives.

Under the proposed loan program, private insurers could borrow up to $50 million for 20 years at an interest rate of two percent. Insurers would agree to hold the policies for 10 years and, after three years, could raise rates on customers more than 10 percent.

Rep. Frank Artiles, R-Miami, who is not a member of the committee, blasted the proposal as a “corporate bailout” scheme designed to help Florida-based Tower Hill insurance and its three companies. He warned the program has no safeguards against a private insurer that encounters financial difficulties can cannot pay the loan.

“The reality is citizens is going to dump 300,000 policies into the private market and give them to weaker insurance companies,’’ he said. “So, at the end of the day, when those companies fold and walk away, you’re going to end up with them again.”

Artiles on Tuesday asked the Florida Office of Insurance Regulation to conduct a top to bottom investigation, known as a “Market Conduct Examination,” on Tower Hill Preferred, Tower Hill Prime, Tower Hill Select and Tower Hill Signature in light of the proposed loan plan.

Artiles has been one of the most vocal critics of Citizens Insurance, warning that the company’s policies threaten to increase the risk on policyholders and will add to instead of reduce the risk to the state.

He won an unusual ally Tuesday when Rep. John Wood, a Haines City Republican, who is also not a member of the committee, also raised doubts about the concept. He represents a region of the state that has long complained about being forced to subsidize Citizens Insurance rates in the state’s coastal areas.

“This surplus notes thing is frivolous in my opinion, totally frivolous,’’ said Wood. He suggested Citizens freeze existing policies and charge the actuarially sound rates on new business to drive away customers.

“My constituents are at great risk,’’ he said. “I’m sympathtic to Rep. Artiles. but I’m not going to have Dade County take down the whole state of Florida…We need real relief fast.”

Rep. Doug Broxson, R-Milton, who is an insurance agent, asked how the company can suppress growth when it fails to charge rates that reflect the acturarial risk — a move that would discourage people from signing up with Citizens.

“We’re re-arranging the deck chairs on the Titanic,’’ he said.

Dan Sumner, Citizens general counsel, said the board hasn’t proposed charging higher rates for new business, but “would benefit from legislative clarification” on the controversial issue.

Read more here: http://www.miamiherald.com/2012/12/05/3126875/citizens-loan-deal-draws-critcism.html#storylink=cpy

State: Insurers to be allowed to change forms first and justify them later

Correction of a previous post from the News Service of Florida:

Hit with a heavy spike in requests for changes in forms, the Office of Insurance Regulation on Monday issued a rule allowing companies to go forward with changes without prior approval in certain cases.

The order, signed Monday by Insurance Commissioner Kevin McCarty, doesn’t affect rate filings by insurance companies – only filings involving forms the companies must file.

With a number of recent changes in state insurance laws leading to an unusually high number of filings, regulators don't have the ability to go through all the form change filings quickly enough. In such a circumstance, the law allows regulators to approve changes without a full up front review.

"This current volume of form filings has taxed the office's review resources and resulted in a lengthier period of review for many filings," McCarty's order states. "Due to the current volume of filings and the agency's resource limitations, the office finds the review and approval of policy forms … is not practicable where the form at issue has been diligently and thoroughly reviewed by the company..."

The order drew criticism from Sean Shaw, a former Florida insurance consumer advocate who now works with a Tampa law firm that handles policyholder claims.

"It's a dangerous day in Florida when the Office of Insurance Regulation turns into the office of blind trust because they lack the resources to independently verify form filings from insurance companies," Shaw said in a statement.