A policy change that will allow Citizens Property Insurance Corp. to renew existing builder’s risk policies and write new policies was unanimously approved by the board of governors during a July 21 emergency meeting. The board also unanimously approved a reclassification of continuous-care residential communities’ coverage.
An emergency meeting was necessary due to Citizens June decision to scale back its builder’s risk coverage, effective July 15. Citizens carries about 6,000 builder’s risk policies that cover about $4.5 billion in properties under construction.
“As you know our decision in June to discontinue builder’s risk coverage has caused quite a ripple throughout Florida, particularly in South Florida, but not necessarily just South Florida,” explained Bruce Douglas, Citizens board of governor’s chair. “Our decision was the right one in our opinion and in the opinion of the Office of Insurance Regulation and the Chief Financial Officer of the State.”
Douglas suggested a three-point plan to the board of governors, which they debated and then voted to unanimously approve:
1. Effective immediately Citizens will renew existing builder’s risk policies, but only at actuarially sound rates until Dec. 31, 2006.
2. Citizens will write new builder’s risk policies until Dec. 31, 2006 at actuarially sound rates to allow time for the market to stabilize and hopefully the voluntary or surplus lines markets will come in and write these policies.
3. Citizens will not cancel existing builder’s risk policies other than for standard cancellation reasons.
These recommendations will be in effect through the end of the year and will be reviewed by the board at its November meeting.
“The Office of Insurance Regulation wrote to us asking us to justify why we write builders risk and in researching that we could not find any reason, order, statute or direction saying that we should or should not write builder’s risk,” Douglas said. “In response to that we made our decision at the June meeting.”
After OIR’s request, Citizens officials responded to state regulators indicating they could not find any specific statutory provisions requiring it to write builder’s risk. Board members then voted to cancel the program.
CFO, OIR make requests
The day before the program was about to be cancelled, July 14, Florida CFO Tom Gallagher wrote a letter to Douglas asking the board to “revisit (its) previous decision to non-renew and cancel builder’s risk policies” because “there is no viable private sector coverage available.”
Gallagher said that Florida could face an economic crisis if builders could not obtain coverage. He noted that, because OIR had not specifically ordered Citizens to stop writing the policies, he believed “this coverage should be made available through Citizens.”
“I also received a letter from Insurance Commissioner Kevin McCarty July 20 expressing his concern about the current non-availability [of builder’s risk coverage] and asking us to reconsider,” Douglas said.
Board members at the meeting included Bruce Douglas, chairperson, John Collins, Earl Horton Jr. John Collins, chairperson of the Reinsurance Committee; Jay Odom and Gloria Fletcher.
“Our action today is a serious response to the market conditions for builder’s risk,” Douglas said. “We have been in this business since the 1970s, nothing by law or directive says that we must carry builder’s risk, but we are doing this because the market demands it, the economy of Florida needs some interim plan to get us through.”
Odom told the board he had been looking for builder’s risk coverage and was unable to find any.
“While Citizens made the right decision 30 days ago and under normal times we should not be in this business, these are not normal times and builder’s risk coverage is virtually unavailable in Florida,” Odom said. “I have searched high and low. At this point of time for the Florida economy we don’t have any choice but to do this.”
Douglas praised Gallagher’s speedy reaction and said it took “great courage for him to step up to the plate.
“The prospects for us depopulating in general continue to look bleak,” Douglas said. “We need to start rethinking our role as an interim solution.”
Douglas said he felt that while the initial mission of Citizens was as a five or seven year solution, Florida now needs a long-term solution for its economy and for its insurance market.
“Mississippi, Alabama, Texas, Louisiana and all those other states are now wishing that they were where the state of Florida is now with Citizens,” Odom commented. “More than 1.3 million Florida citizens now have insurance that would not have it otherwise.”
Bob Ricker, Citizens president advised any builder that applied for a builder’s risk policy during the past week and was turned down, should reapply. He said anyone who was issued a new policy would be covered on an ongoing basis and that the policy would not be back-dated.
Continuing care residential policies
The second item on the agenda related to continuing care residential communities. Douglas said Citizens reclassified residential communities as commercial residential communities, stipulating that no single building has less than 75 percent residents.
Douglas said Citizens will not cover a building that provides medical or hospital service in excess of 25 percent of the total building. Other buildings in these communities, in which the individual building has 75 percent or more of individual residents, will be covered as a commercial residential property.
Before this decision, these types of properties were classified as commercial non-residential risk in Citizens high-risk account.
“The distinction we are making is that as a risk continuing care residential communities are generally residential in nature,” Douglas explained. “We are making a clarification to our rules that if a CCRC qualifies as a commercial residential risk, then we look at the occupancy of each of the buildings in the complex to determine if the character of that building is residential in nature, and if so, that building may be written as a commercial residential risk on a Citizens policy throughout the state.
“We have done a good thing for the many, many people who live in those communities,” Douglas concluded.
Topics Florida
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