Homeowners battle push by Citizens Property Insurance to drop them
Article Courtesy of The Tampa Bay Times
November 10, 2014
Citizens Property Insurance really doesn't want your business. So much so that some homeowners feel they're being misled, if not outright deceived, as they're strongly nudged to go elsewhere.
At the urging of politicians and the state regulators who control it, Citizens has been shifting hundreds of thousands of homeowners policies back into the private marketplace, mainly to small, untested Florida-based insurers.
|Citizens' goal is to shrink as much as possible as it focuses on its core mission: insuring those who cannot find adequate coverage on the open market. Going back into the private market through a "takeout" insurer is better for policyholders, the state-run company insists, because it's less likely they'll face big assessments to help pay claims after a major hurricane.
But what about those who want to stick with Citizens? Especially since it has much sounder fiscal strength than any of the private insurers taking out its policies, according to Florida ratings agency Weiss Ratings. Especially since customers could be at risk of paying higher rates to their new company while Citizens has been cutting rates. Especially since most of the takeout companies have no track record for handling hurricane claims.
Good luck. The hurdles to avoid being taken out of Citizens can be hard to overcome.
Policyholders have to sign a form to opt out; if they do nothing, they are automatically switched to the new carrier. Yet, some policyholders insist they never received a letter or opt-out form from their new, would-be insurance company.
Some fear they may have tossed the notice out as junk mail, believing it to be an unsolicited offer from a company they had never heard of.
Mike Mahan, who lives in Tampa's Riverside Heights neighborhood, nearly did just that.
"I almost tore it in half. … I thought it was just a solicitation," Mahan said after receiving a takeout offer from Avatar Property & Casualty Insurance in October. "They don't even give you a darn envelope to send the (opt-out form) back to them. It's just shoddy."
A 'beneficial offer'?
Citizens spokesman Michael Peltier said takeout companies are supposed to send letters more than 30 days before transferring a policy, with Citizens confirming the move through an "encouragement letter" shortly afterward. However, Citizens doesn't monitor to make sure the initial takeout letters and opt-out forms have actually been sent, he said.
In Citizens' followup letter to homeowners, no opt-out form is included. But there is strong language warning of the potentially dire consequences to resist the automatic switch. The letter describes the "beneficial offer" from the takeout company and warns that those who remain Citizens policyholders may have to pay surcharges totaling up to 45 percent of their premiums.
The warning of a 45 percent surcharge has remained standard on takeout letters for years, even though Citizens has built up a $7.6 billion surplus, which greatly reduces the likelihood that will happen.
A year ago, 91-year-old Addie Biggs of Spring Hill was switched from Citizens to Clearwater-based Heritage Insurance, a move she never wanted but agreed to after her agent said she had no choice.
Biggs said she doesn't recall being able to opt out. "They told me Citizens wouldn't be covering me anymore, something to that effect," she said. "They said I had to take another insurance company. … I asked them why and they said, 'You have to take another insurance company.' That's all I remember."
This month came an added indignancy: Heritage told Biggs it was hiking her premiums from $1,200 to $1,400 in her November renewal.
Thomas Yenik, 78, who lives in Shady Hills in Pasco County, tells a similar tale. Recently switched to Heritage, he was told his new premium will be $1,100, up from the $800 he was paying Citizens.
Peltier said Citizens doesn't know what a takeout company will charge for renewals after a switch has been made. "Citizens is not entitled to this information any more than any other carrier is entitled to policy information of a customer who switches carriers," he said.
Thelma Applegate, a neighbor of Biggs', accused Citizens and insurance regulators of deceiving seniors as well as hurting them financially with higher rates. "Even if it is legal, look what it's doing to people on fixed income."
Applegate said Citizens has tried to drop her twice in the past year, first by placing her policy with Elements Property Insurance in May and then with Olympus Insurance last month. Neither time, she said, did she receive a letter and opt-out form from the takeout company. She found out only when Citizens sent her followup letters that a switch was being made.
"It says in bold: 'You do not need to take any action to begin your insurance coverage,' " said Applegate, a retiree from New Jersey who also lives in Spring Hill. "It's a scam; it's criminal. I never chose Olympus. I have a problem with someone just taking my policy."
In May, Applegate had to straighten out the switch after the fact because Elements was quick to bill her mortgage company to pay her insurance premiums out of escrow. This time, as soon as she got the Citizens letter about Olympus, she notified her agent to find an opt-out form and fax it to Olympus.
Mike Macchiarelli, a 67-year-old retiree, also said he received no opt-out form with his letter from Southern Fidelity; he had to contact his agent. He was furious with the whole idea of opting out.
"Don't tell me no action needs to be taken while I have to take action to stop you," he said. "I really have a problem with that. If I want your service, I'll come and get you. I'm happy with what I have already."
Macchiarelli, a former mason, has been with Citizens since moving from Paterson, N.J., to Spring Hill in 2010. "All they do is make threats that if I stay with Citizens I can expect 45 percent increases," he said.
Amy Horn, who objected to being steered from Citizens to Southern Fidelity, was concerned about the financial strength of the takeout company.
"At least you know Citizens is supposed to be backed by the state. I don't want to take a chance of leaving and if something happens, I can't collect," she said. "The whole thing is very disturbing."
Florida Insurance Commissioner Kevin McCarty, whose office approves companies taking policies out of Citizens, insists all the companies meet rigid financial standards — standards that were bolstered after a string of small Florida-based property insurers went insolvent.
But Gavin Magor, senior financial analyst with Weiss Ratings, said homeowners like Horn have reason for concern.
Weiss, which is based in Jupiter, rates insurance companies nationwide. No other state, Weiss said, has as many domestic insurers with shaky ratings as Florida.
None of the 47 private property insurers based in Florida received a score high enough to be recommended by Weiss (B-plus or higher).
Among some of the takeout companies targeting homeowners in the latest round, Olympus received a D-plus rating (weak and vulnerable); Heritage and Avatar were C's and Southern Fidelity a C-plus (fair). Elements was too new and wrote too little in premiums the past year to be rated.
Homeowners Choice, a publicly traded company that has aggressively used takeouts to accumulate nearly 4 percent of Florida's homeowners insurance market, is currently rated D.
In fact, only one Florida-based property insurer rates at least an A — an A-plus, at that: Citizens Property Insurance. The rating is based on Citizens' strong capital, its reserves, its liquidity and its ability to deal with its across-the-state exposure.
Weiss Ratings doesn't give insurers the option to opt out of being rated.
Many takeout companies either are too new or have not sought a rating from the prime and best-known ratings agency, A.M. Best.
Rather, they typically tout an A rating from another agency, Ohio-based Demotech Inc. Demotech currently gives an A rating or higher to more than 50 Florida-based insurers, or about 75 percent of all property insurers it examines.
If an insurer doesn't merit an A, it has the option of not being rated at all, Demotech president Joseph Petrelli said. Many of the takeout companies that have fared poorly with Weiss — including Heritage, Avatar, Southern Fidelity, Olympus and Homeowners Choice — are A's.
Demotech's ratings have come under fire before, notably when Magnolia Insurance was carrying an A rating from Demotech shortly before going insolvent in 2010. But Petrelli defended his company's record, saying several companies had filed inaccurate financial statements and Demotech has reacted to signs of concern. Out of nearly 800 ratings issued since 1996, he said, "only 12 carriers" entered regulatory supervision within 18 months of being assigned an A rating or higher.
Eight Florida-based insurers that were approved for taking policies out of Citizens have gone insolvent in the past decade, four of them during the highly unusual, hurricane-free stretch now extending through a ninth season.
McCarty, the insurance commissioner, has blamed post-storm insolvencies on other factors, including high expenses over sinkhole claims before the state made it much tougher for homeowners to prove sinkhole damage. In a column for the Tampa Bay Times in July, McCarty also said it's to be expected that some startups will fail, be it due to mismanagement or fraud.
"Companies do fail," he wrote. "It happens in any business."
Yet, stung by the insolvencies and critical insurer ratings, McCarty has moved to increase what he has described as "rigorous" standards imposed by his office on takeout companies. To assume Citizens' policies, insurers now need a minimum surplus of $15 million, up from the previous $5 million.
Magor called the higher surplus a step in the right direction, but not enough. Rather than an arbitrary surplus number, he suggests the level of reserves better reflect an insurer's total number and geographical concentration of homeowners policies.
"Of course Citizens is trying to depopulate. We understand that," he said. "But it shouldn't be at the expense of being able to choose a strong company. There are strong insurance companies who do offer policies in the state, but they're not domiciled in Florida."
Calls roll in to Citizens
The takeout program has proved lucrative for some top executives with Citizens Property. Elements Property Insurance Co., which goes by the moniker EPIC, is run by former Citizens president Bob Ricker. Another ex-Citizens president who succeeded Ricker, Scott Wallace, left two years ago to join the management team at Homeowners Choice.
And the takeout program has worked as intended.
As of mid October, Citizens was down to about 930,000 policies from a high of 1.5 million policies in 2012.
Success hasn't come easily. For 2014, regulators approved private insurers to assume more than 1.1 million Citizens policies, but only 185,000 had been taken out as of the end of October.
One reason for the discrepancy: Between March 2008 and March 2014, about 41 percent of targeted policyholders have been opting out of takeout offers.
Peltier, the Citizens spokesman, said the opt-out rate has not changed significantly over the years.
From January through Oct. 31, Citizens received nearly 17,000 calls and 700 emails/written correspondence about the takeout program, but it doesn't break down how many of those contacts were questions and how many were complaints, Peltier said.
He dismissed complaints over the language used in the takeout letter.
The possibility of a 45 percent surcharge is highlighted because "we want to err on the side of caution," Peltier said. "We want to make it clear up front rather than having to alert already traumatized policyholders after a storm that they face a 45 percent assessment on top of everything else."
Mahan, the Riverside Heights homeowner who objected to his policy being placed with Avatar, doesn't buy it. He still thinks staying with Citizens is a safer bet, based on experience.
Years earlier, under another takeout program, Mahan's policy was shuffled from Citizens to Homewise Insurance. The Tampa-based insurer subsequently went insolvent in late 2011, thrusting Mahan and 70,000 other Florida homeowners back to the state and, at least in Mahan's case, back to Citizens.
After Homewise's insolvency, Mahan was supposed to receive about $600 back in prorated premiums, but the state sent him a letter saying it was deducting $100 from his return to cover costs of the receivership.
"I said, 'Geez. You gave them permission to take my policy. You approved them,' " he said, "and then they were taking out a $100 fee."
Mahan doesn't want a repeat experience. So after receiving the Avatar offer last month, he immediately secured an opt-out form through his agent to fax in.
"If you're passive about it," he said, "you're gone."