Enough is enough- Citizens FL Claim Reserve problem-to the tune of $300 Million

Hadn’t I just written about claim reserves last week in this Claims / Agency Relationship blog?

August 22, 2007 www.Tallahassee.com published this article regarding Citizens of Florida stating that an outside auditor has told Citizens it needs to add almost $300 million to its reserves. The article goes on to quote some folks from Citizens who indicate it’s due to files reopening from Wilma at the encouragement of public adjusters and south Florida attorneys.

The article quotes Mr Julio Robaina, who chaired the legislative task force on Citizens claim handling, as saying “he will introduce legislation to stiffen regulation of public adjusters and to reduce the amount of time consumers have to file a claim”. Chip Merlin of the Merlin Law Group had quite a comeback you’ll have to read about in the link above to this article. Does Mr Robaina really think he’d get the votes necessary to “reduce the time consumers have to file a claim”? Look at what is going on all over this great state to property taxes and mortgage foreclosures and Mr Crist’s efforts 100% pro consumer/ 100% anti carrier as recent articles explain. Does this political representative know anything about the statute of limitations and what is involved in over turning the state laws on these regulations?

Read further here on this Merlin Law group presentation to the task force on page 7 where he addressed the fact Citizens lacks sufficient home office and staff management. Now I’m not sure what the Merlin group who handles bad faith cases against insurers has to do with presenting to the task force but I am sure glad someone is pointing out the problems. Don’t you think that is giving them fair warning of the problems they should already be more than aware of? Where is Citizens going to be when it comes to defending adjusters accused of bad faith due to their claim handling instructions if that becomes an issue as it has with other insurers during Katrina?

Didn’t FL just tighten up public adjuster licensing 7/1/07 which now requires a public adjuster to take the exam versus the exemption from licensing exams by taking online courses? As to the other practices by PA’s made in this article about giving gifts to insureds, we can surely hope the Dept of Insurance is curtailing that now rather than waiting for new legislation to be passed. Here is a task force document  on page 10 already addressing PA’s and task force recommendations.

I did double check the Merlin blog to see if there was a current blog entry on this new announcement.There is not yet but this entry from late July  goes into a great deal of information on the financial problems at Citizens of FL. There is another more recent blog here addressing the Florida crisis and insurance reform problems.

New adjusters may not be familiar with loss reserve procedures and should read  this great simple explanation on claim reserves and how they are set found here. Many independent adjusters are surprised reading this to learn that this is part of their duties when evaluating a claim even long before your estimate is completed based on your initial assessment of the damages as this article does a great job of explaining. While bulk reserves may be set up by a carrier on all claims based on past historical data at the onset of a new cat, there is still a responsibility to have accurate reserves…especially when it comes to large losses. In recent years, there has been concern expressed about reserves set coming up in court cases when they differ from settlement amounts so you will need to know the carriers current reserve procedures before making recommendations to a manager in your log notes and reports.

The part I do not understand is how the Citizens Board of Govenors just got the news. Establishing and updating reserves on pending claim files is one of the most basic of carrier management duties during an open file review which should be done at regular intervals (bi weekly or monthly) on large pending cases to determine how the case is progressing and to double check that reserves are either adequate or that a revision to a reserve needs to be made either up or down based on the current damage assessment on the case. Most carriers produce management reports listing the cases that need a reserve review on a regular basis.Was this not being done (that seems pretty obvious …… what am I missing here)? Claim file reopens do not all happen at one time unless there is unusual activity such as a class action lawsuit? The only two cases I’m aware of are the two mentioned on the Hurricane law groups site here with one for roof damage building permits and the other on wind damage to glass and FL building codes. The class action link does have attachments to the suit in pdf forms. It is routine for storm losses to reopen due to  construction industry price increases after a storm. This can occur much later than when the initial estimate by the adjuster was written due to contractor workloads or lack of available local contractors in a given storm zone. No surprises there either. Adjusters remaining on the site handle those revisions as necessary on an ongoing basis. So what’s up?

You can find all minutes of the Board of Govenors meetings right on the Citizens of FL website here. I’ve been very disappointed with the promptness with which the website posts the meeting minutes from the Claim Committee notes. For instance, there was a meeting June 14th and the minutes for that meeting still showed minutes from an April Claim committee. I wrote the web master and received a response that the June minutes were still not up in August because they have to be approved by the committee and they did not know when the next claim committee meeting would be. Come on’ folks…the task force shows the claim committee met with the task force I believe it was August 1 yet the minutes from a June meeting were still not up? Those committee notes are the only direct source information adjusters can go to to verify information they are getting from different vendors since the emails they are getting vary so greatly! If you can’t get the minutes up timely to your meetings, how in the heck are they going to manage claims for 1.3 million Floridians in a timely fashion?

I am not picking on Citizens but I do think it is very important to bring out issues independents are concerned about. Citizens of FL is now the #1 insurer in our state. Our independent adjusters want and need the claim assignments. PLEASE treat us fairly, please enhance the communications, and please be alot more realistic about time service expectations during a major disaster. Your threats of imposing huge fines is not having the effect you apparently expected (what else are we to assume?)..instead, adjusters are hesitant to service your claims and you are confirming their concerns every day by the way you are handling the pre-assignment training. (Example-one vendor email says Citizens now requires adjusters must enter their Xact  email address…hello ..you make sure independents understand they are not “employees” yet to have an Xact email they need an active keycode…are you going to pay that hefty fee for a quarterly subscription to Xactware while they are sitting at home idle waiting for THE POSSIBILITY you may deploy them???).

It is appalling to me that Citizens outlines many different fines for infractions against adjusting firms in their Adjusters RFP which are going to be passed on to adjusters but there is no effort to give timely notice to independents on important information they need. Some of these fines are listed at $1,000 each. Just in the past two weeks adjusters who had completed pre-disaster training were again told to go back and take another course on ethics and apparently the adjusting firms had as little or barely more than 1 week’s notice to get this information out to their rosters, accomplish the training, and report back. What a mess this continues to be and adjusters don’t have claim 1 yet from a new hurricane nor one dollar in income from you !

I’ll be making another blog post next week on the current “pre-disaster” training issues adjusters are experiencing as well as I have great frustrations regarding some comments in the June Board of Govenors meeting where a large FL Independent agency group, FAIA, expressed concerns about Citizens training from the agency side feeling that agents are regulated by state insurance departments for licensing and for CE credits and they had some issues with the mandatory Citizens training for agents (they didn’t mind taking it but I gather it was the way it was being administered). At this same meeting, the Citizens claims committee was there and there was no one representing the 6,000 expected independent adjusters at the meeting to express what would be our major concerns about what has taken place the last month over the continual changes and adminstration of independent adjuster training to work their claims. Just one minor example is the fact Citizens has never even bothered to post the website addresses and email contact information on their Job links so these independents would even know where to apply. The only information, if you searched hard enough, is in the purchasing documents where the announcement was buried (like adjusters would even think to look in purchasing documents? ). The announcement has several incorrectly named firms and no contact information. Here is the link to this meeting board notes. You will find the FAIA (FL Assn of Insurance Agents) comments on page 32-37 and the claim committee comments to the Board on page 45.

I guess if we have one thing to be thankful for over this additional Citizens of FL reserve fiasco, it’s that it isn’t as bad as the Citizens of LA case where they have major computer glitches going on and lots of lost financial data. They apparently aren’t doing a good job of managing claims either. You can read all about the Citizens of LA fiasco here and here.  This article addresses further issues of information blocks while they are trying to  gather information needed to fix the problems over there.

This Insurance Institute article on carrier insolvency brings up the recent FL insurers, Poe Financial Group and Vanguard Insurance, insolvencies. Why is Citizens allowed to operate with inadequate rates and improper reserves? I just don’t understand. Hopefully, someone will come forward and explain to our readers why this is different.

Make sure when you read the document linked above from the Board meeting notes on their discussion on Citizens being a “governmental” agency on page 10. Well, if Citizens of FL actions on reserves, pre-disaster training, the Citizens of LA issues, and the FEMA and congressional hearings on the wind/water issues are any example of government running as an insurance carrier and their suggestion of the Multiple Peril Act of 2007 adding wind coverage to FEMA ,then why should we want any part in supporting such proposals? Please let the private carriers go back to doing what they WERE doing best in the private market.

While none of us in the adjusting community like denying claims under the wind/water controversy- it is still the contract insureds agreed to no matter how many cry “big bad insurance company”and until private carriers develop a comprehensive policy covering both, I’m 100% against the government administering additional programs. Insureds need to ask themselves…if they  signed a loan agreement to pay back x dollars and did so then the loan company came back and told them that the contract didn’t matter- they need to cough up several more thousand dollars they did not agree to- what would they do? I assume as a loan recipient, if they used the same line of thinking they use with carriers, that they would just roll over and pay the extra thousands so they don’t get bad publicity. I still do not understand why so many expect that carriers should pay what was not covered in the insurance contract. I do “get it” that some bad calls may have been made on a small percentage of individual claims which never should have happened. The current midwest floods show that the public still does not “get it” regarding the need to buy flood coverage. Just this week- 2 years post Katrina- news reports are coming out that many locations in the midwest are reporting much damage with only 5-10% of homeowners in flood zones having purchased coverage. Again, I do believe we will see the carriers and the adjusters be the “fall guys”. Things need to improve in this industry but I think the FEMA and Citizens examples show it’s not the answer to turn it over to “governmental” agencies.

If the government wants to do something for the very necessary adjusting community, how about developing an Insurance Claims Advocate group member on your task force like you do for consumers..click here for task force member links. This committee list shows two claim members- one from Citizens and one from another insurance carrier. There is not one member of the task force committee investigating claims from the independent adjuster group yet they are relying on 6,000 plus independents to service their claims. It could not be one of your 45 selected vendors if you want valid input as they would have to give you “politically correct” input to maintain their appointment. Think about it…we might be able to help straighten out some of these “claim handling issues” you are investigating. Independents work for many different carriers and they might just be able to provide outstanding information on improving claim handling procedures. It sure seems like Citizens is missing the boat if these articles are any examples of what we are going to face servicing their claims.

Please don’t get the wrong impression- we have LOTS of empathy for insureds when we must deny a claim due to coverage issues. That still doesn’t give us the right as adjusters to change the settlement terms we must abide by. We are also very concerned citizens of the state of FL with our friends and families in this state. We have inside knowledge of how claims should be handled and we fear for what the coming hurricane season brings our state.