MINUTES OF THE CLAIMS COMMITTEE MEETING Friday, July 13, 2012

Transcription

1 CITIZENS PROPERTY INSURANCE CORPORATION MINUTES OF THE CLAIMS COMMITTEE MEETING Friday, The Claims Committee of Citizens Property Insurance Corporation (Citizens) convened telephonically on Friday,, at 1:00 p.m. (EDT). The following members of the Claims Committee were present telephonically: Nancy Baily (Chairperson and Board member) Carol Everhart (Board member) Don Glisson (Board member) Jon Palmquist (Technical advisor) The following Citizens staff members were present telephonically: Barry Gilway Yong Gilroy Lance Malcolm Jimmy Johnson Jay Adams Dawn Sexton Gregg Golson Jeff Handy Eric Ordway Anne Olson David Boyle Dan Sumner Call Meeting to Order Chairperson Nancy Baily called to order the meeting. Roll of the committee was taken. Chairperson Baily stated, I want to take a minute to welcome our newest committee member, Mr. Don Glisson. Welcome to the committee, we re glad to have you and appreciate your feedback and ideas. Also, I want to briefly introduce Mr. Glisson and Jon Palmquist because I don t believe they had an opportunity to meet. Jon is a technical advisor to the committee and is a voting member. Jon does have a vote, so the Sunshine Law does apply as it relates to the committee issues. Jon is the General Council and Director for Field Operations at North American Risk Services. Don is from the Jacksonville area and is the Chairman and CEO of Triad Financial Services that is a manufactured home lender.

2 1. Approval of Prior Meeting s Minutes A motion was made and seconded to approve the April 13, 2012, Claims Committee minutes. All were in favor. Motion carried. 2. Key Performance Indicators and Initiative Updates David Boyle stated, I ll be providing everybody with a high level overview of our Key Performance Indicators (KPI). After which we d be happy to answer any questions you may have on any of those. We recognize that you ve all had a chance to look at the details ahead of time, so we ll focus our comments on a few key highlights. I ll also be providing an update on our 2012 Initiatives several of which we ll cover in more detail later in the meeting, by Lance and Jay Adams in particular. Before we begin, please note that all of the KPI materials are through May 31 st. The timing of this meeting didn t allow us to have all of the data through the end of month June for each of our metrics so we limited the data. However, we will be providing you with current data relative to Tropical Storm (TS) Debbie when Jimmie Johnson delivers his Catastrophe (CAT) Update. So if you would please turn to tab two, page one in your materials, touching on some of the highlights through the end of May, our first notice of loss (FNOL) volume has increased by 5.4% over year end Two items of note, however, our sinkhole claims volume is down 20.1% through May 31 st, and our dropped object claim volume has experienced a significant reduction. Both of these are obviously very positive developments. You ll be hearing more from Lance regarding details surrounding sinkhole claims and our comprehensive strategy sinkhole project later on in the meeting. David Boyle continued, if you turn to page two, you ll note that our cycle time and closing ratio measures are relatively flat. We have had some slight degradation in our Litigated and Disputed Claims Area in both cycle time and closing ratio as we ve adopted a more aggressive, defensive strategy in that area. As a result, both of those cycles both cycle time and closing ratio trends are an entirely unexpected and inconsistent with the stance we re currently taking in that area. Again, Anne Olson will be providing the committee with more detail relative to LDCU measures later on in this meeting. On a very positive note, we have closed 2,693 sinkhole claims year todate versus 880 at this time last year. The sinkhole team in Tampa has done an outstanding job working through the pending that was created by the increase sinkhole claim volume experienced over the last couple years, and the reduction in volume through May of this year has really helped them close out a lot of that hold or pending. David Boyle continued, if you ll turn to page three in your materials, you ll see our customer service metrics continues to be a good story, with the May complaint ratio at 0.65% being the best single month ratio we ve experienced since we began tracking the measure. It should also be noted that we have yet to receive any formal complaints regarding claims related to TS Debbie. I think kudos are in order for Jimmy Johnson and his team in the CAT Operation for the excellent management of the storm response so far. David Boyle continued, If you turn to page four, we continue to see positive trends in our Quality Assurance (QA) results. Overall, 2012 QA results stand at 93.3% compared to 90.3% Citizens Property Insurance Corporation Claims Committee 2

3 through May of last year and 91.9% at the year end As most of you know, 91% of our claims volume is handled through our independent adjusters (IA) and our Managed Claims Model (MCM) which we reference as MCM. The MCM quality results through May are 92.4% versus 90.4% in January, so we re continuing to see positive results out of the MCM model. David Boyle continued, if you turn to page five and six, you ll note that our Special Investigation Unit (SIU) referrals as a percentage of new claims has improved over 2011 results as well. They re still a little short of the results we were achieving at this time in 2010, however. A highlight of that is we have had a 203% increase in the Division of Insurance Fraud (DIF) referrals over If you turn to subrogation recoveries on page 6, you ll note that those have increased by 55% over year to date 2011, driven primarily by increased referral volume as well as improved quality on our front end claims handling. Both of those areas are handled by Dawn Sexton and report to Lance Malcolm. David Boyle continued, finally what I would like to highlight are several of our 2012 Claims Operations Initiatives. As you re all aware, we ve recently completed a solicitation for contingency solutions regarding broadband voice and data coverage as well as emergency generator services. Both solicitations are the potential of CATs, that impacts any of our ability to access either power or broadband capabilities in any our locations. Both solicitations have been completed and are in their final contracting phases. Once those contracts are completed, we will begin scheduling testing of both of those contingency solutions. We ve also implemented a Team Leader Practical Application exercise in which we run 25 potential team leaders from our MCM operation through 10 days of practical application exercises at our location in Jacksonville. Now, what this does is it allows them to effectively act as a team lead capacity in a controlled environment, which effectively increases our team lead capacity should we need to significantly scale our model at all during a CAT response. This is one of the areas we ve identified as an opportunity, heading into the CAT season, and we re thrilled that we ve been able to get that up and running in a pretty short time. After the current group is completed, we will have effectively increased our team lead inventory by 75 individuals, and we ll continue to run IA through that program throughout the summer. So, every 10 days we should effectively have an additional 25 potential team lead candidates. Lance will be providing you all with more details on our comprehensive sinkhole strategy project and Jay Adams will be providing a status update on the Core project. David Boyle continued, before I turn it over to Eric Ordway, does anybody have any additional questions on any of the materials relative to the KPI s or the Initiatives update? Jon Palmquist inquired, I noticed on your discussion on SIU referrals you talk about the Fraud Awareness Campaigns, increased communications, and so forth. Is there anything further you can do to hit the 2010 referral percentages? Or 2010, was just something else going on for those high percentages? David Boyle responded, I can t speak to 2010; I ll let Lance and Dawn discuss that. We are actively looking and again, as part of our overall sinkhole strategy, we are looking at significantly changing our approach to SIU in the sinkhole arena which I believe would have a Citizens Property Insurance Corporation Claims Committee 3

4 pretty significant effect on the overall referrals as well but, Lance and Dawn, I ll let you guys address both of those. Lance Malcolm responded, well, a couple things, David, and thank you for the question, Mr. Palmquist. We did see a significant decrease in our SIU referrals last year when we initiated the MCM process and again began to shift those claims from inside desk adjusters to outside independent field adjusters. Part of that, we increased communication between our SIU team, our MCM management, supervisors in the field, and working with the independent adjusters firm team leads on a more consistent basis. We are continuing that communication plan; continuing to develop new fraud awareness content, web content, for release to internal and external stakeholders, and we have additionally filled the SIU Analyst position, which we had talked about in a prior Claims Committee update. We believe this is going to give us the opportunity to be able to analyze and develop trends in the data that we re seeing, so we that we can proactively get out and begin to drive some of the increased fraud awareness and fraud referrals versus just waiting for the front end adjusters to make those referrals to us. So over the course of time, by implementing additional continued enhancement activities in that regard as well as communication and fraud awareness, we believe it will continue to influence that referral rate and bring that referral rate up on a continuing basis. We have moved our SIU referral percentage from 1.57% to 1.77% in the last year over year. David Boyle added, one additional thing we have done is that we have a dedicated team that was handling dropped object claims. As those results have improved, we actually converted that team to be focused to some extent on SIU s specific claims, and we don t expect that to have a significant impact on the referral ratio; however, we do expect that to have an ongoing improvement in the results of those SIU claims. Yong Gilroy added, there is no doubt that today the referrals that we re providing to SIU and us to DIF are much more quality in nature. So although I do see the trend difference, I believe that the quality of the referrals we re giving today are much more accurate and much more deliberate than we have been in the past. You know I think another KPI we need to provide, Jon and David, is maybe the capture rate by DIF and then ultimately what s the results overall. I think it s good that we re giving that SIU referral. We need to be able to give them a couple more data that actually addresses the depth and the quality of our referral and what effect it s having on the SIU arena. So, I think that will be helpful. Thank you. Chairperson Baily added, And, Jon, David, and Lance and I spoke earlier this week about our experience in private, with other carriers. We were probably more toward the 4% target for SIU, but we did acknowledge that at those companies we did have data analytics available to us that allowed us to be more proactive in finding some cases. Now that Citizens has brought on this analyst position, I think you ll see that percentage increase. Like Yong said, it will be quality referrals as well. Jon Palmquist commented, that s great news. As the state s leading carrier, everything that can be done to aggressively pursue the SIU agenda will help the whole state. 3. Insurance Operations Update Citizens Property Insurance Corporation Claims Committee 4

5 Eric Ordway stated, I have a brief update on our IA Service Vendors. We ll talk about our current IA inventory. The numbers in the table are as of June 15 th, and we have a little over 4,571 total approved prequalified resources in the inventory. There are 1,301 currently deployed, which leaves a little over 3,200 of prequalified adjusters who are in the inventory. We re excited that this is a current record level with the IA teams. They are currently at 119% of the overall commitment. The commercial general adjuster (GA) contracting firms are at 90% of their commitment. This is positive news as we enter CAT Season. I d like to thank Latrice Calhoun and Brandy Cortez, who are in our credentialing team and who have to go through reprocessing and re credentialing all of these individuals annually. I d like to thank all of our CAT Operations team with the development of the mock CAT testing. If you turn to the next slide, it shows the top three performance measures, which are Dispatch Service Time, MCM Cycle Time, and MCM Average QA Scores. Overall, the trends are meeting the performance goals. It s in a state of control. There is currently no solicitation process or activity today. We are preparing to support the activities around the comprehensive sinkhole strategy. Jon Palmquist stated, Congratulations. At the last meeting, I believe you were at about 3,500 on the total and now you are at 4,571. This is great news. I also noticed, though, that the not approved went up from 2,500 to 2,600. Is the reason that you re trying to build a bigger pool? Eric Ordway responded, yes. There are two drivers in the not approved open. They could be new individuals who submitted partial information. We encouraged more applications, because this is our secondary pool inventory in a CAT. This also involves individuals who qualified last year, but who did not complete the re credentialing. Some people do leave the business, and that is part of the reason why we do the re credentialing every year. Chairperson Baily asked, this does not reflect TS Debbie, so there are only 2,200 CAT adjusters? Eric Ordway responded, they are included in this pool. I think Jimmy will touch on deployment, and how much we are able to utilize the existing non CAT inventory versus needing to deploy new resources. Jimmy Johnson added, with TS Debbie, we were able to utilize all of our currently deployed MCM adjusters to respond. That was about 395 resources. Yong Gilroy added, historically, we had two different kinds of workflows. There was the MCM and the non CAT claims were structured differently. Our plan going forward is to utilize and expand our current non CAT operations so we can manage the small storms quickly and efficiently by the people who are in the marketplace today, because they are already familiar with our system. 4. Sinkhole Update Citizens Property Insurance Corporation Claims Committee 5

6 Lance Malcolm stated, we are aware that sinkhole claims had a profound impact on Citizens financially in The Insurance Operations team has been building a comprehensive sinkhole strategy that intends to address the impact of sinkhole claims across the insurance cycle from the policy language to the underwriting process to the claims process. We must strengthen our fraud awareness and our SIU capabilities while we improve the claims handling process. We provided under tab four updates on some of the KPI trends around sinkhole claims. Although sinkhole claims decreased 20% year over year, we continue to see monthly average claim volumes at 300 sinkhole claims a month in Our average indemnity remains around $85,000 per claim. Our average Loss Adjustment Expenses (LAE) remains around $10,000 per claim. We ve seen an increase in the amount of sinkhole claims being remediated. Citizens continues the practice of tendering sinkhole claims according to statute by paying the Actual Cash Value (ACV) of the loss exclusive of the remediation cost until such time the insured selects the stabilization vendor, and we begin to incur those costs as the stabilization is completed. We believe that strategy is in accordance with the statute and tends to drive more appropriate behaviors around reporting sinkhole claims. Lance Malcolm continued, on page 13 under tab four, we provide a comprehensive update on the sinkhole strategy. Insurance Operations initiated the strategy in late March with the initial Sinkhole Summit conducted also in March. Over the course of the past 60 to 90 days, we organized this project around six distinct project tracks: coverage, claims handling, fraud prevention, litigation, managed repair program, and legislation. We began moving the claims organization transition forward through posting of the Sinkhole Associate Director position. We are moving our organization to go from a desk based model to a field based model. We need to continue to develop implementation of sinkhole best practices and a comprehensive training strategy to accompany that transition. We have been working with Product Development on policy language revisions, and we are working with SIU enhancements that were alluded to earlier. We have increased SIU investigators in Tampa, and we developed an SIU analyst team concept that will provide support on the frontend adjusters and SIU investigators. We will continue with the development of the strategy around the sinkhole issue and continue to give updates as those opportunities are available. Jon Palmquist inquired, the Managed Repair kickoff in July is that the actual program you re going to kick off? Lance Malcolm responded, no. That will be the kickoff for the due diligence of the program. We believe the due diligence and the writing of the solicitation in order to build the program will be a six to seven month time period. We believe we ll have a program in place in the first quarter of Jon Palmquist asked, is this program going to be an effort to rebuild....? Lance Malcolm responded, the purpose the program is to give us the capability to ensure that remediation is completed effectively and in accordance to the engineer s plans. It will include the remediation contractors, stabilization vendors, and the contractors that do the repairs to the structure. Citizens Property Insurance Corporation Claims Committee 6

7 Jon Palmquist asked, Is Citizens going to control those vendors? Lance Malcolm responded, yes. They would be under contract. That is why it will take so long. We would need to do a competitive solicitation. We could invoke our right to repair. There is also a voluntary option for policyholders. With that voluntary option, we get the request today on who they should use for stabilization. We can prequalify companies we have confidence in and recommend those companies. Chairperson Baily inquired, on page 12 there is a mention that a case ended in a mistrial. They were unable to select from the pool a jury panel. Lance Malcolm stated, as we ve said before, we ve been establishing procedures to bring more sinkhole litigation to trial. We have four cases we prepared for trial and were going to trial in One of those did end as a mistrial. They ran out of people in the pool, and the two sides could not agree on the last juror. It resulted in a mistrial. Chairperson Baily continued, so, it really isn t a venue issue where they cannot seek juries in certain counties? Anne Olson explained, we found that in that particular case that we could not find jurors that did not have that type of bias in a sinkhole case. We do have that trial slated to go back on the docket. We do have some scheduling challenges with witness availability. Chairperson Baily commented, I m observing that perhaps certain counties will have trouble finding unbiased jurors. Anne Olson responded, we anticipate that this may be a challenge. You are absolutely correct. Lance Malcolm added, one of our tracks for our sinkhole strategy in litigation is that we have an upcoming legal summit toward the end of July. One of the topics we will be discussing is how we approach trial and the challenges we have in some venues for the trials. Jon Palmquist asked, when and where is the Sinkhole Legal Summit? Anne Olson responded, it is in Tampa on July 31 st. Jon Palmquist asked, is it open to the public? Lance Malcolm responded, I don t believe it s a public meeting, but we can get you additional details on it. 5. Litigation and Disputed Claims Trends Anne Olson stated, my information is under tab five. The graph on page 14 illustrates an upward trend in new disputed claims, liability, and litigation assignments. The most significant Citizens Property Insurance Corporation Claims Committee 7

8 2012 growth is in litigation. Year to date through May disputed claims increased 21.3%. New liability assignments are up 12.5%. New litigation assignments are up over 3,336 for 2012, which is an increase of 67.7%. While we ended 2011 with the lowest annual percentage increase in new lawsuit volume at 22%, we did start seeing a significant growth in year overyear growth. We see an average new suit volume at 646 through May Turning to page 15, we received 1,173 new appraisal claims along with 704 new losses. June numbers show a slight pullback in numbers in new appraisal claims and new losses. New sinkhole suits accounted for 22.5%. Of those, new suit volumes are at 150. Anne Olson continued, the top drivers of litigation remain the same as the last report with water losses flat at 41%, a 4% reduction in weather related losses, and a 4% increase in sinkhole. The top two litigation drivers remain the same since the last report with long term leakage flat at 22%, and value disputes increasing at 3.5%. Partial denials are at 9.24% and now exceed all appraisal ligation matters, which have dropped from the 11.5% to 5.36% of the total litigation inventory. All sinkhole related disputes total 16.52%; this includes litigation on varying sinkholerelated disputes election to repair, disputes over sinkhole activity, and no engagement of stabilization repairs. The litigation team continues to respond to growth and new suit volume with responsive litigation strategies, improved QA results, and scalable workforce solutions. The 2012 results are listed, and we had one additional defense verdict beyond what is reflected in your materials. We have a significant commercial case trial starting on Monday. We ve had 17 voluntary dismissals, 16 motions for summary judgment granted, and 35 proposals for settlement accepted. Anne Olson continued, on page 16 of your binders you ll notice that the LAE and indemnity trends are consistent with the last report. Both have been trending down on an annual basis with an increased 2012 results to date being driven by the resolution of several large commercial files. Jon Palmquist asked, you mentioned at the last meeting about a scalable workforce solution and expending that IA resources. Could you provide an update on that? Anne Olson responded, there are a certain number of things that we have done to prepare ourselves in the event that we should see more volume that could be driven by a CAT. I ve been working with Jimmy Johnson. Our needs are embedded within the overall CAT Plan. Traditionally, we have expanded the LCDU contract for a resource pool from seven vendors to 27. We expanded our criteria so that attorneys are eligible to work as litigation specialists. We engaged in offsite deployment of residential appraisal firms reporting an increased presence of litigation teams on site. We expanded our partnership with the frontend claims department to identify drivers and to prevent disputes and litigation. We do have a temporary employee contract in place, which can be leveraged to provide administrative support or supplement certain target markets in an adjustment capacity. 6. CAT Operations Summary Jimmy Johnson stated, you may recall from the last update that we provided an overview on our 2012 CAT testing on 15 modules. Those modules identified 72 action items, Citizens Property Insurance Corporation Claims Committee 8

9 and we ve completed 53 of them. The remaining 19 are in various stages but are being progressively and actively worked on. On the communications initiative, David Boyle mentioned earlier that we are in final stages of the contract. I want to take a moment to thank you for your support on June 13 th when it passed. Jimmy Johnson continued, for the 2012 storm season, it has been quite active. We ve had four named storms thus far this storm season, two of which hit Florida. I m going to give you a brief update on TS Beryl, which occurred on May 28 th and made landfall in Jacksonville Beach, Florida. We are very fortunate in the path and speed of that storm as we only received 266 claims. Of those 266 claims, 250 were residential and 16 were commercial. Over half of the claims received were from Duval, Nassau, and Broward Counties. 86% are closed, 97% have been contacted, and 93% have been inspected. Now for an update on TS Debbie which made landfall on June 26 th, we received to date 4,020 claims as of this morning. Of those 4,020 claims, 3,891 are personal and 129 are commercial. 80% of those claims have been reported from Pasco, Pinellas, Hillsborough, Sarasota, and Hernando Counties. At present, we are 45% closed, 95% contact made, and 82% inspections completed. We have paid $4 million in indemnity payments. Jimmy Johnson continued, I will go through with what we have learned thus far; we need to enhance our real time data reporting, which we have. Our IT partners and Vendor Relations were very quick to jump on this action item immediately following TS Beryl. We were able to use it for TS Debbie, and it worked perfectly, without flaw. TS Debbie provided a unique issue in that when we went into binding restriction on Saturday, June 23 rd, the storm was projected to turn west and not impact Florida. What ended up happening was a seven day rain event. We were able to put some tracking together for future modeling that will help us identify how those tropical storms can impact us in the future. We are very satisfied with the information collected. Our ability to expand the MCM was paramount in this particular event. We did not have to make any deployment notifications to outside resources. We were able to utilize 395 resources. It was a good test to see how they can stand the capacity. I think it went well. Jon Palmquist inquired, I noted in the minutes of the last meeting that you are prepared to handle 12,000 calls per day from your call center vendors, but you have a contract to handle 25,000 calls per day. You said we re trying to expand that to 50,000 per day. Have you made any progress on that? Jimmy Johnson responded, yes, we have. Jeremy Pope with our Agency Services has been working with our current vendors to expand that number. It is in final stages with our senior management team and executive leadership team as far as working out the numbers and the cost. Each vendor assured us that it would not be a problem to meet that capacity level. The biggest day we had for TS Debby was on that Tuesday when it made landfall on June 26 th. In about half a workday, we received 2,000 calls. All of them were responded to within the expected timeframe and manner. We do not anticipate any issues. Eric Ordway added, the other thing is that Jeremy and his team with the Underwriting team had a business process outsourcing solicitation that is in the final stages. Assuming this gets done on the 25 th, there will be an action item coming to the July Board of Governors meeting. One of the categories in this solicitation is call answering services, and they added the ability to Citizens Property Insurance Corporation Claims Committee 9

10 do FNOL support. I know that there are six additional vendors that are advancing to the demonstration round. They will be contracted as additional resources in the background if Claims needed to leverage them. 7. Core Update Jay Adams stated, I d like to give an update on CORE, and I will begin with explaining what CORE is and what we re trying to accomplish. Our primary objective is to try and use as much of the out of the box technology that is available in the Guidewire product. What that means is that we don t want to go in and over customize the product, because that causes issues if we try to update to a newer version in the future. We want to make sure that we include all of the legislative changes that are required, so we would need to make slight additional changes for that. We want to make sure that we deliver a claims platform. We are working on the commercial release today. We wanted to make sure that we did not build a product that was commercial and then turnaround and build a new product that was residential. Our goal is to have a claims platform that will support all claims activity. We will release commercial first, and we will have to make tweaks to the product for residential; however, we will not create a situation where we cause throwaway work. Jay Adams continued, for purposes of what this CORE project is, there are basically four phases that this has been divided into. The inception phase was from February 2012 through April What we did was look at the product screen by screen at the functionality to determine what gaps existed between what it would do straight out of the box versus Citizens needs. We also looked at estimates to verify that the proof of concept numbers were accurate, which helped us define the number of resources we need to help configure this product, as well as a timeline. We re currently in this development phase that began in May and is set to conclude in December 2012, and we are in our third sprint. What we re moving toward the release date is we re developing incremental software solutions month over month. In each of these sprints, we are able to demonstrate workable software toward the end goal of having a commercial claims management system. We have in the first few sprints been able to take in FNOL. We will complete the assignment rules and administrative functions so that the system can auto assign claims Jay Adams continued, the next phase will begin in December and run through March We call that Testing and Stabilization. What will take place is that we will do extensive testing. The methodology that we are using to build the software does not allow end to end testing until we are complete. We will put it into the business units, have subject matter experts come in, and have user testing to make sure it works with real life tests. After it stabilizes, we plan on moving that out to full production in April Lance Malcolm added, in advance of the delivery phase in April 2013, we also have teams working on organization change management and developing the training process and materials to train employees and to IA firms in advance of the system going live. Chairperson Baily inquired, the delivery phase is new claims going forward, correct? Citizens Property Insurance Corporation Claims Committee 10

11 Jay Adams responded, that is correct. In April 2013, we should be poised to take in 100% all new commercial losses into the Guidewire software. We should also be able to take all of the old closed claims into the Guidewire product. We will not be using the old system to process new claims or even reopened claims. Chairperson Baily commented, I ve had a couple conversations with Lance and others about the ability to monitor and measure legal expenses. Part of our challenge is the current system we are using. When could we expect to have data on legal expenses on all claims? Jay Adams responded, from the Guidewire release perspective, it will be commercial only on April We are setting up specific coding on processing which will carry reporting tags where we can do discrete reporting across the line. We are doing initial planning to determine when we think we can go live with residential claims. Once we can do that, we ll have the full suite product to provide the expense details. Eric Ordway added, we ve shared the frustration in being able to look at our LAE by cause of loss, vendor, etc. The teams have worked with IT for the last two years, and we re excited. The systems data warehouse LAE reporting tool went into production last night. We re going to have a demonstration with the claims leadership team to see what we can get. It helps with the interim step until all of the Guidewire capabilities are in place. This tool pushes all of the LAE payments from our three policy systems into our data warehouse and allows us to look at it compartmentalized such as legal expenses or engineering expense. At the next Claims Committee meeting, we can provide that capability. Chairperson Baily asked, so those are 2012 deliverables that data warehouse? Lance Malcolm responded, it s live today. Yes. Jay Adams added, the Guidewire product, once it s live, will give us discrete data at many levels. One of the things that we are doing with Guidewire and the Claims Center releases, we introduced a significant number of causes of loss categories so that we have more reporting across any data element in the datacenter. Chairperson Baily asked, are the release residential claims services in 2014? Jay Adams responded, that is probably a realistic view today. Yes. We are looking at the first quarter 2014 as the target. 8. Consent Agenda Dan Sumner stated, I have for your consideration an action item with regard to the procurement of Sinkhole Coordinating Council. A competitive solicitation was issued for a Sinkhole Coordinating Council, which would be a law firm with responsibilities on a project basis. It would evaluate and look for ways to optimize both sinkhole litigation outcomes and to find ways to control cost savings with sinkhole claims. This is a different skill set than defense council. Our procurement was for someone who is experienced with coordinating complex Citizens Property Insurance Corporation Claims Committee 11

12 litigation over multiple suits. In that regard, we had nine results in terms of timeliness responses. The top three vendors were interviewed telephonically by a committee. The highest scoring firm was Ackerman, Link & Santory, PA. Their principle designee for this project, Scott Link, has extensive experience as a coordinating council. To put it simply, the role of coordinating council is that while the defense council and claims adjusters goes on winning or optimizing the resolution of a single case (which is a very big job in sinkhole cases), the role of the council is to look at all of the cases to find ways to uniformity, consistency, and strategies to be optimized across the entire spectrum of sinkhole cases. Dan Sumner continued, this has tremendous potential to be a resource which will be a strong augmentation to the overall comprehensive sinkhole strategy. It will allow for the litigation strategy to have someone to look at this strategically while all of the various components are being focused on a micro view. Retaining someone who has extensive coordinating council experience is a fairly unique skillset and is not cheap. The projected cost for three years of this work is $1.5 million. I would point out that this is not a fixed fee contract; it is an hourly rate contract. This is just estimation if we have heavy use of this council. The contract is terminable at any time; we are not obligated to take this process through the entire three years. That would be the term that would take us through the current cycle of heavy sinkhole litigation. Chairperson Baily inquired, would coordinating council help with cases in appraisal? Or, is it only in one form of litigation? Dan Sumner responded, the role of the coordinating council is not to appear in any particular case. The defense council will still have ownership as council of record. I think in an appraisal, the coordinating council would have a valuable role when looking at the entire sinkhole process as a project, you would say to yourself, On a particular project, do we want to bring this case to an appraisal? How do we want to position it? Do we want certain cases to go in different orders? Are there certain cases going to trial that may or may not impact this? Do we want to do this appraisal before we go to trial? Once an appraisal started, it would be the frontline people who would manage these specific appraisals. Jon Palmquist commented, you mentioned that this is an effort to coordinate all sinkhole claims and not just in litigation. Is that correct? Dan Summer responded, yes and no. I think the principle focus is on litigation, but I think that as we are seeing an increase in sinkhole litigation, the coordinating council would want to have a dialogue with the claims adjusters to give them insights and uniform strategies with regard to what to look for to see if a case is heading in that direction. It would help to have strategies before a suit is filed. The coordinating council would not become a claims adjuster. Jon Palmquist continued, correct. assistance with neutral evaluation. Just as with an appraisal, they would provide Dan Sumner responded, that is a very important area where they could provide assistance. Citizens Property Insurance Corporation Claims Committee 12

13 Barry Gilway commented, I do have some experience in the area but primarily based upon the California subsidence claims. In the subsidence area, virtually every company in California went in one of two directions. They either went to fully centralized claims management process for subsidence, or they went the coordinating council route. The advantages are substantial. The best practices application here is significant, because you can literally apply consistent practices. Of course, the impact of any single case can be substantial, and consistency in terms of a litigation standpoint is significant. This is an area that I support very strongly. Chairperson Baily observed, it is an unbudgeted item. variance, but I would hope the bottom line impact is very positive. It may create an expense Dan Sumner responded, I think that is a reasonable expectation. Jon Palmquist added, I think the fact that it can be cancelled at any time is an important element. Don Glisson added, it s my understanding that we are being billed just for the hours and it is not just a flat monthly fee. Dan Sumner confirmed, yes. They are only being paid for work done. A motion was made and seconded to approve to bring to the Board the action item to have Ackerman, Link & Santory, PA as the Sinkhole Coordinating Council. Chairperson Baily asked, do you want to have quarterly reporting of the expenditures, so we know the run rate of the expenditures? Jon Palmquist responded, that would be helpful along with an update based on the four categories that Dan has outlined. All were in favor. Motion carried. 9. Chief Information Officer Closing Yong Gilroy stated, as you can tell by the presentation today, we have three primary focuses in in the Claims Operation. Number one is that we are obviously in the CAT season, so our operation continues. Jimmy and our leadership team has done a good job working with Eric Ordway and his team to make sure we have the right number of IAs, and we are prepared as a company and ready as an enterprise for the storm season. I feel comfortable with our catastrophe preparation. The second item is the sinkhole strategy. As Lance laid out the comprehensive sinkhole strategy, it is no doubt one of the most concerning areas of our company today besides depopulation. For that reason, I ve asked Lance to really focus on sinkhole and developing sound sinkhole strategies. He is, no doubt, one of our best experts in sinkholes. He will continue to inform the committee along with myself to make sure that we are driving toward a right solution and results in sinkhole. The third item is in the area of LDCU. It is Citizens Property Insurance Corporation Claims Committee 13

14 such a sizable organization, I have turned that responsibility to David Boyle, so he can help me concentrate on aligning the frontend claims operation and the drivers of LDCU to come up with a plan of action for more enhanced training for the IAs and staff so that we can address those issues before it gets to the disputed claims unit. Those are the three areas that we are going to concentrate on going forward. Both David and Lance will report directly to me, so that I can help remove obstacles and drive those results. Yong Gilroy continued, I want inform the committee members of the exposure that we have. I m not sure if there is anything we should do to fix it today. We do need to develop a solid strategy around it, but I wanted you to be informed of it so you understand it. Keep in mind the sinkhole and litigation units are heavily concentrated by IAs. If we were to have a sizable storm or storms this summer and if we do not address this issue, it will pose a concern for us in terms of a resource issue. As storm activity increases, that could provide in those areas of sinkhole and litigation that some of those adjusters could leave our facility to chase storms. Due to the fact that we have a limited number of staff, we want to make sure you are aware of the heavy concentrate of IAs in those two units. We will continue to inform you on our progress and how we will deal with those issues. At the end of the day, I m not sure if we ll be able to reduce that exposure. We are open to suggestions and ideas. Chairperson Baily noted, I think there are about 25 vacancies. It would help to fill those vacancies. Yong Gilroy responded, I agree. I think the challenge of having empty seats is that we have attrition. We will do our best to fill those and put those people in the right places. Barry Gilway commented, I ve had an opportunity to spend time with the claims leadership. My initial impression is that this is one of the strongest areas of the company. The progress that has been made over the last three years has been almost extraordinary. I complement the team. This is a very strong team, and one you can be proud of. Chairperson Baily agreed, I ve come to the same conclusion when I came onto the Board. It is a strong team that has been assembled. New Business Chairperson Baily stated, I learned that there is some discussion about implementing a special limited liability for water losses. I know nothing more than that. I don t know if it is specific to non weather water. Yong Gilroy responded, this is for the water sublimit of $15,000. Our current average water loss is about $12,000. We are in the process of filing that along with the rate filings in July and August. We will be taking that to the Actuarial and Underwriting Committee meeting on Monday. I think markets in the companies that are smaller than ours have limits of $10,000. Our goal is to address the growing number of loss issues. Citizens Property Insurance Corporation Claims Committee 14

15 Chairperson Baily asked, is there an option for a buyback? We discussed those particular options. Our discussion has been that we would not offer buybacks. Carol Everhart commented, as long as we are on that subject, I see a limitation on mold. Can you tell me what claims we have on mold? We have basic form coverage going off of water damage. Lance Malcolm responded, I do not have the information on mold claims specifically. We do have coverage in our policy that does have a supplement for mold. I can get details for you that we can share. Carol Everhart continued, on the basic form coverage, I m not sure where the mold would come in. Lance Malcolm responded, we ll get information to you. Carol Everhart added, it might also be good information for the meeting on Monday. Chairperson Baily asked, I m assuming people are in favor of sublimits? Lance Malcolm responded, we have been involved in the development of that product in the policy language through our claims consultants. We supported that language. I believe it is non weather related water damage. Chairperson Baily continued, I saw that you are having an increase in fraud referrals related to water as cause of loss. I m assuming you think there is a moral hazard there. Lance Malcolm responded, we do. We do see an increase of them going into SIU and that is why we worked with Product Development. Barry Gilway added, I believe this will be discussed during the meeting on Monday. It s a significant cost savings. [meeting adjourned] Citizens Property Insurance Corporation Claims Committee 15