State probes wind insurance computer models

[jasons2k]

State probes wind insurance computer models

New wind insurance law reveals formerly hidden rate calculations

BY ANN HENSON

Key West Citizen Staff

The state wants to know what factors the Keys' wind insurer used to arrive at its rates, and specifically has requested documentation of Citizens Property Insurance Corp.'s computer models as part of an investigation into the company's rate making.

Insurers use the complex computer programs that delve into storm history, losses in particular areas, the probability of future losses, and the dollar amounts to develop their actuarially-based rates. They used to own the information and keep it private — and were allowed to because competition among them generally insured that rates would be fair.

A 2005 legislative overhaul of Citizens, which the state created in 2002 when no other companies would write policies in Florida, required that insurers reveal their methods.

Citizens' rates were developed by an in-house employee and a hired actuary firm that used two computer models, according to David Foy, chief of staff of the Office of Insurance Regulation (OIR).

"In the past, we didn't see the behind-the-scenes workings of the rate filings," Foy said. "By law, if you now use a private model, you have to give the OIR and the state insurance advocate information on how the assumptions worked."

If insurers don't want to reveal their data, they must use a public model the Legislature directed Florida International University to develop. Foy said the public model, which it accepted last fall, so far has produced results similar to those of private companies,

If Citizens fails to provide the modeling information, insurance regulators should require the company recalculate its rates, said Steve Burgess, state insurance advocate, who also is investigating Citizens for Tom Gallagher, Florida's insurance commissioner.

One aspect of the models that's under scrutiny is historical data. Foy said Citizens' data dates back to 1900, a fact that state Rep. Ken Sorensen, R-Key Largo, has questioned. In a letter he wrote to be read at a recent meeting of Fair Insurance Rates for Monroe County, a grassroots group that's fighting insurance rates, Sorensen misconstrued how Citizens rates were developed.

"OIR ... stated that they only have data from 2004 and 2005 on which to base Monroe rates. This is incorrect and we need to make sure that they are based on Monroe's historic data and not solely on the past two years," Sorensen wrote.

Foy said his agency used two years worth of records only to determine whether Citizens has competition in the Keys, a fact that determines how Citizens assess its rates.

If there was competition, Citizens would base its rates on the average of the top 20 companies.

Without competition, which is the case, Citizens is supposed to base its rates on actuarial data.

The governor and Cabinet will decide in April whether to approve the pilot program that Citizens created. If approved, Citizens' new rates for the Keys would go into effect in June or July.

[flashflood]

Speaking of Citizens, they just charged me an additional $75 on my FL homeowners policy which is from a private company. The policy says Citizens is short like 500million or so and need to charge everybody in the state to make up the difference.

Also my insurance company want's me to decide which Hurricane deductible I want.

$500 - sounds too good to be true, I have to research this.
2% - i had that last year
5 % - a little too high for out of pocket expenses.
10% - that is like almost having no insurance IMO, lol.


note: the insurance on my other home in Spring, TX is 1/3 of what I pay in FL.....I am waiting to see if Rita is going to have any effect on that when I have to renew.

[terstorm1012]

I am confused...is Citizens a private corporation or a state-owned one?

[yzerfan]

Citizen's is effectively a quasi- private company created by the state of Florida to issue policies in areas where no traditional private insurance is available. The phrase I hear most is "state-backed insurer of last resort".

In areas where there is private insurance available, Citizen's is allowed to write policies, but is supposed to only do so at rates significantly higher than fair market price in order to encourage consumers to go with the traditional plans route. Citizen's is also supposed to work with traditional insurers to encourage them to write policies in higher risk areeas.

Description from their web site:

http://www.citizensfla.com/press/pr.asp?file=8_17_2005b

"In 2002, state legislation combined Florida's two residual market insurers: the Florida Windstorm Underwriting Association, which had offered wind-only coverage in coastal areas since 1972, and the Florida Residential Property and Casualty Joint Underwriting Association, which provided all-perils property insurance policies since 1992 to all Floridians unable to find coverage in the private market.

The creation of Citizens resulted in a number of improvements over its predecessors. Most importantly, Citizens was designed to operate as quasi-state entity exempt from federal income taxes. As a result, Citizens is able to return hundreds of millions of dollars annually to its own surplus, providing greater claims paying resources following a hurricane.

Citizens has also experienced great success in returning policies back to the private market. In the first six months of 2005, Citizens, together with the Office of Insurance Regulation, has negotiated the return of more than 250,000 policies to private insurers. Citizens has placed an emphasis on new or existing companies interested in expanding their Florida business and maintaining a long-term presence in the state. "

[ROCK]

Speaking of Citizens, they just charged me an additional $75 on my FL homeowners policy which is from a private company. The policy says Citizens is short like 500million or so and need to charge everybody in the state to make up the difference.

Also my insurance company want's me to decide which Hurricane deductible I want.

$500 - sounds too good to be true, I have to research this.
2% - i had that last year
5 % - a little too high for out of pocket expenses.
10% - that is like almost having no insurance IMO, lol.


note: the insurance on my other home in Spring, TX is 1/3 of what I pay in FL.....I am waiting to see if Rita is going to have any effect on that when I have to renew.

Just recieved my renewal from Nationwide. No increase at all. Now after this year that might be a different story.

BTW- I am in a cat 5 evac zone. I can't see raising your rates that far north.