Audit reveals gaps in Citizens Property Insurance’s underwriting controls

A recent report from the Florida Auditor General has highlighted the need for improvements in the underwriting and eligibility controls of Citizens Property Insurance Corp.

The report, which reviewed various aspects of the carrier’s operations — including customer service, claims handling, internal audits, and information technology — found that Citizens needs to strengthen its processes to ensure policies adhere to statutory coverage limits.

As per a report from AM Best, between January 2021 and August 2023, Citizens issued or renewed 1,820 noncommercial property policies that exceeded state-mandated coverage limits, according to the auditor’s report. During this period, Citizens issued and renewed over 3.33 million noncommercial policies.

In response to the findings, Citizens acknowledged the need for improvement and stated that it is currently assessing its systems to identify areas where enhancements can be made.

Under Florida law, Citizens is prohibited from covering structures with dwelling replacement costs of $700,000 or more, or single condo units with a combined dwelling and contents replacement cost of $700,000 or more, in counties where there is reasonable competition among carriers. In areas deemed noncompetitive, the coverage limit increases to $1 million.

The report also noted that between 2021 and 2023, Citizens’ premiums were approximately $2.8 billion below the amount that would have been collected if actuarially determined rates had been applied. These rates would have accounted for reinsurance costs for a 1-in-100-year storm, according to the auditor general.

In December 2023, Citizens projected a shortfall of $542 million in the event of a 1-in-100-year storm, which could necessitate a surcharge on policyholders. The report suggested that state lawmakers should reconsider statutory rate limitations and allow Citizens to include projected reinsurance costs for a 100-year maximum loss in its rates.

Citizens indicated that it would support such legislative changes if lawmakers adjusted the statutory rate caps.

The auditor general also recommended that Citizens and state lawmakers take further steps to encourage private market carriers to participate in the insurer of last resort’s clearinghouse. Additionally, the report urged Citizens to ensure that all policies, whether new or renewed, are available through the clearinghouse.

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