Monroe County Windstorm Risk Remodeling and Analysis Initiative A Proposal to Citizens Property Insurance Corporation

Transcription

1 Monroe County Windstorm Risk Remodeling and Analysis Initiative A Proposal to Citizens Property Insurance Corporation Prepared by the Grassroots Organization FIRM Fair Insurance Rates in Monroe December 13, 2012

2 Introduction Citizens Property Insurance Corporation writes 91% of the residential wind policies in Monroe County. Windstorm insurance is again becoming unaffordable and, in some cases, unavailable in Monroe County. Monroe County is unique in geography, economy, land cost, environment, building codes, and storm history. Monroe residents seek market stability and wind rates commensurate with their actual risk. December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 2

3 Introduction (continued) Fair Insurance Rates in Monroe (FIRM) is a local non-profit was created in 2006 has a mission to ensure windstorm rates that are neither excessive, discriminatory nor unaffordable has engaged in research, legislative activity and cooperation with Citizens for the past seven+ years December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 3

4 Introduction (continued) FIRM is concerned that catastrophic risk models do not properly model the catastrophic (CAT) risk in Monroe County indicated rates may be excessive excessive rates affect the insured, and excessive modeled losses may inappropriately increase Citizens PML the Florida CAT Fund needs. December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 4

5 Introduction (continued) FIRM believes if risk is properly determined using the best science, accounting for all risks associated with hurricanes, and identifying actual building characteristics, then it would be more likely that private insurers or other insurance structures would write additional policies in the Keys. This would Assist in Citizens depopulation effort Reduce Citizens exposure to loss Help return the agency to an insurer of last resort December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 5

6 Introduction (continued) For those reasons, FIRM is requesting Citizens to fund an independent, third-party professional Remodeling and Analysis Initiative for Monroe County that will Distinguish damage that will be caused by storm surge (and paid by flood insurance) from that caused by wind Include engineering data regarding structures in Monroe County, confirmed by physical inspection of a statistically valid sampling of buildings December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 6

7 Introduction (continued) Goal is to depopulate from Citizens by Shopping the Monroe book of business in the private market, or Establishing a mutual or reciprocal insurance company for Monroe County (and potentially other coastal areas) The cost of the study will be approximately $485,000. The cost represents less than one percent of the annual premium Citizens collects in Monroe County. Citizens stands to drop $11 billion in exposure if an alternative is found for Monroe County. December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 7

8 Introduction (continued) This process of community risk analysis and mobilization could provide valuable technical and actuarial information to Citizens and the private market especially in looking at other coastal areas and depopulation efforts. It is an opportunity to reduce policies in force and potential assessments. December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 8

9 Background: Monroe County & Windstorm Insurance Monroe County, more widely known as The Florida Keys, is the southernmost county in the State and consists of uninhabited mainland and a string of inhabited islands stretching nearly 200 miles from Florida City through Key West and to the Dry Tortugas. December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 9

10 Background: Monroe County & Windstorm Insurance(continued) The need for hurricane insurance was recognized in Monroe County after Hurricane Donna characterized by NWS meteorologists as primarily a storm surge event in 1960 In 1970, the Florida Windstorm Underwriting Association (FWUA) was established to provide windstorm insurance to Floridians who could not get such coverage in areas where there were no other options lack of such coverage would harm the economy minimum Florida Building Code standards were enforced Monroe County has historically met or exceeded these criteria December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 10

11 Background: Monroe County & Windstorm Insurance (continued) Private insurers fled Florida after Hurricane Andrew Florida Residential Property and Casualty Joint Underwriting Association (JUA) post-andrew FWUA and JUA combined in 2002 to create Citizens Property Insurance Company, the insurer of last resort. In 2006, OIR issued finding of no reasonable degree of competition for windstorm insurance in Monroe County Citizens added multi-peril (including sinkhole) in 2007 December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 11

12 Background: Monroe County & Windstorm Insurance (continued) Today, Monroe County accounts for Approximately 23,000 policies (1.6% of Citizens Policies in Force) Nearly $80 million in annual premium (2.43% of Citizens total) Just over $11 billion in exposure (2.27% of Citizens total) Citizens accounts for 91% of personal residential wind policies in the Keys December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 12

13 Background: Fair Insurance Rates in Monroe Founded in early 2006 Keys policyholders saw disconnect between skyrocketing premiums and historical infrequency of wind claims Grew from 32 Key Westers to 5,000 members Keys-wide Volunteer board of engineers, insurance professionals, elected officials, realtors, contractors and community activists One part-time paid employee, the Executive Director Non-partisan, 501(c)(4) corporation Mission is to reach residential, condominium and commercial property insurance rates in Monroe County that are neither excessive, discriminatory nor unaffordable. December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 13

14 Background: Fair Insurance Rates in Monroe (continued) Monroe s residents have made considerable investments in addressing windstorm issues since FIRM Has raised and invested over $200,000 to hire actuaries and insurance professionals; fly volunteers to legislative sessions, Citizens hearings and FCHLPM meetings; prepare presentations Volunteers have spent over 10,000 hours addressing the issue; some of these professionals would earn up to $300/hour if they billed for their time Local governments Have spent over $200,000 on professional services to address Citizens rate proposals Are investing considerable staff time on issues relating to building strength; Monroe County invested 240 person-hours in 2012 alone December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 14

15 Background: Fair Insurance Rates in Monroe (continued) FIRM s approach has been analytical and disciplined Lobbied legislature when necessary Built relationships and worked with Citizens, the Office of Insurance Regulation and the Insurance Consumer Advocate Presented before Florida Commission on Hurricane Loss Projections Methodologies (FCHLPM), Florida Public Hurricane Model, the Governor s Office and the Florida CFO Researched and offered solutions, not just criticisms December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 15

16 Background: Fair Insurance Rates in Monroe (continued) FIRM members have been appointed to the: Citizens Mission Review Task Force (Teri Johnston) Florida Catastrophe Fund Advisory Committee (Campbell Cawood, C.F.A.) Florida State Task Force on Citizens Property Insurance Claims Handling and Resolution (Heather Carruthers) 2008 Florida Wind Loss Mitigation Study (Annalise Mannix, P.E., as a consultant) National Association of Insurance Commissioners Consumer Liaison Representative (Colleen Repetto) December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 16

17 Background: Fair Insurance Rates in Monroe (continued) Results Successfully challenged 2006 rate increase Changed FCHLPM standards relating to condo size building strength storm surge Legislative and administrative changes related to use-and-file annual increases building code exemption, claims processing premium payment options December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 17

18 Background: FIRM Findings Monroe County s premiums have far exceeded claims From 1995 to 2005, premiums exceeded claims by $322 million From 2003 to 2011, premiums exceeded claims by $504 million Monroe County s rates have been disproportionately greater than other hurricane prone areas December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 18

19 Background: FIRM Findings (continued) In counties where the wind speeds were equal to or lesser than those in Monroe in key storms, Monroe s premiums were disproportionately high, losses were less, and Monroe s exposure to premium ratio was significantly better ** * * *Citizens Coastal PR-W counts, October 31, 2012 **data provided by Citizens in response to FIRM public records request, December 2011 December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 19

20 Background: FIRM Findings (continued) Years of FIRM research suggest that the Florida Keys are a good wind risk for two primary reasons. Wind vs. Water: Due to our low elevation, the greater damage from any hurricane of a Category 3 or greater will be caused by storm surge (paid by flood insurance), not wind. Building Strength: For decades, buildings in the Keys have been required to be constructed to withstand wind-storms with gusts in excess of 150MPH. Prior to codes, buildings were built to stay on islands inaccessible by roads, with supplies shipped in. In other words, we are required to build structures that will withstand a Category 4 hurricane, and we will be flooded in a hurricane of a Category 3 or greater. December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 20

21 Background: FIRM Findings (continued) Most of the Florida Keys would flood in a storm of just Category 2 or greater. A Category 3 or higher storm would cause significant flood damage. Monroe County Inundation Map SOURCE: Monroe County Emergency Management December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 21

22 Background: FIRM Findings (continued) December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 22

23 Background: FIRM Findings (continued) In the Keys after Hurricane Wilma, flood insurance paid 14 times more in claims than wind insurance did. Flood claims for Hurricane Wilma alone exceeded all wind claims paid in 2005 for four named storms (Dennis, Katrina, Rita, Wilma). Wilma surge was only 3 feet above seasonal high tide SOURCES: Citizens Property Insurance as of February 28, 2006; National Flood Insurance Program as of 6/30/09 December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 23

24 Background: FIRM Findings (continued) Monroe County has traditionally exceeded state wind load requirements. Monroe County s ISO Building Code Effectiveness Grade is 3. Hundreds of homes in Key West, with the largest wood-frame historic district in the U.S., have withstood hurricanes for over a century. Many of these historic homes were built by shipwrights to withstand extreme weather. Monroe County has had the toughest building code in the state for the longest period of time. Key West first adopted the Standard Building Code in December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 24

25 Background: FIRM Findings (continued) 1986 Florida Building Code December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 25

26 Background: FIRM Findings (continued) Building Code Standard Building Code 1999 South Florida Building Code Florida Building Code 2007 Florida Building Code 2010 Florida Building Code Relative Wind Load Requirements Over Time Fastest Mile 100/ 110 Dade Monroe Orange Wakulla Broward 3 Secon d Gust 120/ 130 Fastest Mile 3 Secon d Gust Fastest Mile 3 Secon d Gust Fastest Mile 3 Secon d Gust 115* Fastest Mile ** / / exp C 180 exp D. some C 3 Secon d Gust December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide / / /110 93/ *By State Statute ; Monroe also added the SBCCI Hurricane Resistant Construction Code and NFIP Regulations which further mitigate flood and wind. **1994 Monroe county Code 6-16 required additional hurricane resistant construction 120/ exp. C Except at CCCL-D

27 Background: FIRM Findings (continued) 2007 Florida Building Code December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 27

28 Background: FIRM Findings (continued) 2010 Florida Building Code Monroe County from Islamorada south = 180mph wind load Monroe County from Islamorada north = 170mph wind load December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 28

29 Background: FIRM Findings (continued) Comparison of Design Pressures for Risk Category II Buildings City V ASCE 7-05/2007 FBCB V ASCE 7-10/2010 FBCB (est.) Percent Difference in Comparable Design Pressures Exposure B Inland Exposure D 2,3,4 Coastal Pensacola % -12% Tampa % 0% Orlando % NA Miami-Dade % (1) +3% Broward % (1) +6% Tallahassee % NA Gainesville % NA Jacksonville % -22% Monroe* NA +24% *Monroe data obtained from MECA wind for a structure 24x36 feet with 18 foot ridge, cat d 2010 vs cat c 2007 (54.30/67.00 PSF) NOTES: 1. Miami-Dade and Broward Counties require all buildings to be considered to be in Exposure Category C. 2. ASCE 7-10 and proposed 2010 FBC requires all water surfaces, including hurricane prone regions, to be considered Surface Roughness D FBC requires roof-to-wall uplift and roof sheathing uplift loads to be increased by 20% for buildings located within 600 ft of inland bodies of water that represent a fetch of 1 mile or more. 4. The Exposure D analysis would also apply to inland bodies of water meeting the definition of Exposure Category D. December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 29

30 Project Goal and Confidence Develop an accurate wind risk profile for the Keys that Distinguishes between wind and surge damage Incorporates accurate building strength data An accurate profile is the first step needed to Establish fair, actuarially sound rates that are neither discriminatory nor excessive Improve rate stability Remove 25,000 policies, and $11 billion in PML from Citizens Test a scientifically derived strategy that may be helpful in depopulating Citizens elsewhere in the State December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 30

31 Project Goal and Confidence (continued) RMS Model 11.0.SP1 predicts that Monroe County s vulnerability may have been overstated in prior RMS models December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 31

32 Project Goal and Confidence (continued) When AIR ran the Citizens Monroe County book of business and compared it with storm surge turned on, the 100-year PML was reduced 31%. December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 32

33 Project Goal and Confidence (continued) Will reinsurers accept this new risk profile? Yes if developed in a scientific, disciplined, validated manner Yes if developed by an independent, accredited entity recognized by the market and the FCHLPM Yes according to re-insurers and firms who have already expressed an interest December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 33

34 Why Monroe? History FWUA, JUA and Citizens originally conceived precisely for Monroe Pilot Project in 2005 resulted in OIR report in 2006 that there is no reasonable degree of competition for windstorm coverage in Monroe September 2006 OIR finding rolled back wind rates in Monroe alone FIRM has built relationships and worked with Citizens for the past seven years December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 34

35 Why Monroe? (continued) Manageability Small policy count 22,873 residential wind policies Discrete data set entire Citizens territory contained within the islands of the Keys No competition any risk analysis of Citizens wind policies is valid for all wind risk Groundwork has been laid by FIRM and local building departments Auditing oversight by County Clerk s Office December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 35

36 Why Monroe? (continued) Precedence and Authority Monroe is an Area of Critical State Concern The only inhabited county with this designation in its entirety State oversight and strict regulation regarding any development issues A no-growth county OIR Pilot Project finding of no competition was for Monroe County alone December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 36

37 Why Monroe? (continued) Section 8(E) of Citizens plan of operation allows Citizens to treat territories differently based on the availability of coverage from the voluntary market; windstorm is not available from the private market in Monroe County Citizens enabling statutes support geographically targeted solutions focused on empirical data and supported by data December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 37

38 Why Monroe? (continued) Replicability Easy to identify factors that impact wind risk in Monroe given small size Identified factors may help target other potential depopulation areas December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 38

39 Methodology and Chronology Vulnerability Study identification and verification of building characteristics that impact wind resistance Creation of Survey Tool Identify sample set of properties to be inspected Develop survey tool to ensure consistent and accurate inspection Investigation of effectiveness of shutters used in Monroe Developed by PhD Professional Engineer experienced in risk and reliability engineering with respect to wind December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 39

40 Methodology and Chronology (continued) (Vulnerability Study continued) Inspections Performed by licensed engineers Data related to key building components such as: Building category Straps Roof types Roof coverage Siding Height Shutters Foundation connection Trees Design professionals Flood elevation Finished floor elevation Exposure categories December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 40

41 Methodology and Chronology (continued) Natural Catastrophe (Nat Cat) Analysis conducted by a risk analytics team including actuaries, engineers and insurance specialists experienced in natural catastrophe analysis Information Gathering Property exposures Historical property loss information Historical property exposures Existing risk retention arrangements Existing nat cat analysis Existing analysis of other property perils December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 41

42 Methodology and Chronology (continued) (Nat Cat analysis continued) Risk Modeling and Loss Forecasting Analysis of current risk in existing models Enhanced input into existing nat cat and regular property models, based on historical loss exposure information and Vulnerability Study results Forecast loss outcomes to various degrees of probability Existing Risk Retention and Insurance Review Analysis of risk retention for good, bad and average years Recommendation of sufficiency of required insurance and reinsurance limits Analysis of effects of storm surge and building vulnerabilities Existing premium requirements compared to new modeled forecasts December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 42

43 Methodology and Chronology (continued) (Nat Cat analysis continued) Sustainable, Optimized Risk Financing Planning Based on outcome of Risk Retention and Insurance Review Develop cost of risk, and of operating an insurance structure Develop allocation scenarios based on geo-coded vulnerability data (also used to develop future mitigation programs) Assess risk tolerance of risk transfer options in different scenarios Risk Retention, Self-Insurance and Reinsurance Structure Recommendation Evaluate options for windstorm coverage Recommend most reasonable effective, sustainable product December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 43

44 Methodology and Chronology (continued) Deliverables Vulnerability Study Survey Tool List of sampled properties for inspection Inspection form Two meetings with FIRM (kick-off and final presentation) Final written report Summary of conclusions Sampling procedure Inspection procedure Data collected Analysis of the data Results of each listed task References December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 44

45 Methodology and Chronology (continued) (Deliverables continued) Inspection Program Completed inspection forms Associated back-up in electronic format Verification of reduced wind risk from storm surge Written report of risk modeling and loss forecast Slide courtesy of Matt Strahan, Meteorologist in Charge, National Weather Service, Key West, 2008 December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 45

46 Methodology and Chronology (continued) (Deliverables continued) Natural Catastrophe Analysis A written final report summarizing procedures, tasks and references Survey of existing data sources Analysis of current risk in existing models Forecast of risk required for good, bad and average years, including Anticipated claims Assessment of sufficiency of existing insurance and reinsurance retention rates Risk planning options, including allocation scenarios and risk transfer vehicles Recommendation for most reasonable and sustainable windstorm option for the Keys December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 46

47 Methodology and Chronology (continued) February 1 Advertise RFQ March 1 Open Bids Chronology Estimated project time: 10 months March 2 Award Bid March 15 Project kick-off Data collection & Vulnerability meetings March 16 Meetings with building departments Assumes a timely decision from Citizens regarding funding July 15 Completion of Vulnerability Study November Completion of Nat Cat Study December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 47

48 Budget Task Description Estimated Cost Vulnerability Study Storm Surge Verification Natural Catastrophe Analysis Verify the quality and characteristics of building stock in Monroe County Verify reduced windstorm risk from storm surge on the Citizens book of business in Monroe County Independently analyze the Citizens book of business in Monroe County and examine options for alternate insurance structures $230,000 $35,000 $200,000 Project Management $20,000 TOTAL COST $485,000 December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 48

49 Budget (continued) This initiative requires insight from highly specialized and experienced professionals in the engineering, financial and risk realms. Monroe County residents have already spent well over the cost of the initiative seeking a solution to their wind insurance crisis. The cost of the initiative is 0.614% of the annual Monroe premium, % of the gross profit in Monroe between 2003 and 2011, and % of the Monroe PML. Further, the potential to depopulate Citizens in a structured way that contributes to market stability in the Keys and provides insight into possible solutions across the state is enormous. December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 49

50 Conclusion Proposal developed after years of research Cost is reasonable Potential is great Help Citizens depopulation efforts Achieve fair rates in Monroe County Reduce or eliminate Citizens assessments Improve insurance market statewide We respectfully request full funding of the Initiative as quickly as possible. December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 50

51 Presented by FAIR INSURANCE RATES IN MONROE Monroe County Commissioner Heather Carruthers, President Annalise Mannix, P.E., Executive Director December 13, 2012 Monroe County Windstorm Risk Remodeling and Analysis Initiative Slide 51