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Citizens Property Insurance sees upside to little-used clearinghouse

Published Jan. 9, 2015

It was July 2013, and Barry Gilway, head of Citizens Property Insurance, was selling his board on a new way to keep homeowners policies out of the state-run insurer of last resort.

Before placing a policy with Citizens, every Florida agent would have to run their customer's information through an online clearinghouse to see if any private insurer would provide coverage under comparable terms.

Gilway told board members that using the newly state-mandated clearinghouse could keep 35 to 45 percent of homeowners policies from going into Citizens. So the board committed spending up to $3.9 million to launch and operate the clearinghouse in its first year and earmarked up to $46 million over 10 years.

To say the clearinghouse has underperformed expectations is an understatement.

Eleven months after its launch in January 2014, only 12,000 out of 148,000 policies run through the clearinghouse — 8 percent — were found ineligible for Citizens because a private insurer had offered coverage within 15 percent of Citizens' rates.

Initially the clearinghouse just handled new written policies. In September, it began screening the policies of all its current customers before automatically renewing them, and results were even more paltry: as of Nov. 30, only 842 policies, or fewer than 2 percent of renewals, were found ineligible for Citizens and received a private offer for coverage.

Critics say the results show the clearinghouse is a waste of money. Private insurers are already writing more business and a separate "takeout" program has been booming, with private insurers taking hundreds of thousands of policies out of Citizens.

"It's kind of ridiculous," said Carol Everhart, an insurance agent with BB&T and former Citizens board member. "It's an utter failure for the money they pay for it. We're getting tons of takeouts going on, so why do we need another process?"

The program's shortcomings should not have been a surprise.

There's clear incentive for insurers to use Citizens' takeout program to build their business instead of the clearinghouse. They have more flexibility to raise rates of takeout policies. The clearinghouse option lets customers go back to Citizens during the first three years if their new company hikes premiums more than 10 percent.

Independent insurance agents are also no fans of the clearinghouse, deeming it unnecessary since agents already seek multiple quotes before turning to Citizens.

Jeff Grady, president of the Florida Association of Insurance Agents, further describes the clearinghouse as "cumbersome," estimating it adds up to 20 percent more to agents' workload in writing a policy.

"It's adding another layer, and it is dissuading to agents," Grady said. "Agents are already seeing more voluntary market activity (placing policies with a private insurer) than they've ever seen. If you can get it done that way and avoid going through the clearinghouse … they prefer it."

Citizens executives, however, say the unpopularity of the clearinghouse can be viewed as a good thing.

To Steve Bitar, Citizens' point man for the clearinghouse launch, the program qualifies as a success just by virtue of the fact agents and insurance companies are trying to avoid it.

About a third of the policies that should have gone through the clearinghouse did not because they were tagged for the takeout program.

"If (policies) are not placed with Citizens, that to me is success," Bitar said.

Adam Marmelstein, Citizens' director of market services, drew comparisons to the Y2K computer scare. When the digital world didn't come to a screeching halt on Jan. 1, 2000, some thought billions of dollars had been wasted on computer upgrades.

"The reality was nothing bad happened because those billions were spent," Marmelstein said. "You hate to have your success measured against something that didn't occur. But we did what we were supposed to do."

Citizens has spent about $1.6 million in the clearinghouse's launch and initial year.

It could have cost millions more. But in a sound dose of financial foresight, the program is structured so the vendor, Bolt Solutions, is compensated based on how many policies are processed through the clearinghouse.

Looking ahead, critics of the clearinghouse say the program will be even less important, particularly if Florida enjoys another hurricane-free year.

Nine hurricane-free seasons, cheaper reinsurance costs and a more vibrant private marketplace have already helped Citizens whittle its policy count from 1.5 million to less than 730,000 as of the end of 2014.

It doesn't have much further to go. Gilway said this week that the lowest Citizens could likely get to even under these strong market conditions is 525,000 to 550,000 policies because there will always be hundreds of thousands of higher-risk policies that private insurers don't want to touch.

Nevertheless, Bitar insists the clearinghouse is and should remain a vital part of Florida's insurance marketplace infrastructure. Even if it's an underutilized tool now.

"If the market shifts," Bitar said, "we'll be glad we have that clearinghouse in place."

Contact Jeff Harrington at jharrington@tampabay.com or (813) 226-3434. Follow @JeffMHarrington.