CITIZENS PROPERTY INSURANCE CORPORATION
MINUTES OF THE CLAIMS COMMITTEE MEETING
Friday, January 30, 2015
The Claims Committee of Citizens Property Insurance Corporation (Citizens) convened
telephonically on Friday, January 30, 2015 at 10:00 a.m. (EDT).
The following members of the Claims Committee were present telephonically:
Gary Aubuchon (Chairman)
Jim Holton (Board member)
Freddie Schinz (Board member)
Jon Palmquist (Technical advisor)
The following Citizens staff members were present telephonically:
Barry Gilway
Jay Adams
Jeffrey Handy
Elaina Paskalakis
LaTrice Calhoun
Dawn Sexton
Dwane Tyson
Tim Horkan
Shari Hamilton
Call Meeting to Order
Roll was called: Chairman Aubuchon, Jim Holton, Freddie Schinz, and Jon Palmquist were present.
1. Approval of Prior Meeting’s Minutes (December 4, 2014)
A motion was made and seconded to approve the December 4, 2014 minutes. All were in
favor. Motion carried.
2. Vendor Update
Jay Adams stated, Thank you, Chairman. I wanted to start off today by thanking Chairman
Aubuchon and the committee members for allowing Claims to conduct this unscheduled Claims
Committee meeting so that we could present three important action items.
Jay Adams continued, we are hopeful to gain approval from this committee to move these
action items to the February Board of Governor's meeting for final approval. We requested this
meeting so that we can lock in a pricing commitment with our Acuity partners on a disaster
recovery site, and so that we can move to a new contract term with Xactware Solutions so we can
leverage their new web and mobile solutions, and make necessary all the IT changes prior to cat
season. We also would like to add new vendors to our Sinkhole Stabilization Managed Repair
Program so that we can provide important resources for our policyholders.
Jay Adams continued, if you would, please turn to the Litigation Management Services tab in
your binder. I would like to discuss the Acuity Action Item, and this comes in two parts. So I am
going to give you a little background on that and then we will go over each part individually. Acuity
is a SaaS based software solutions used by both Citizens' internal staff and outside counsel to
facilitate the management of all activity on legal matters, including trend analysis reporting,
auditing of vendor billing and storage of all applicable documents between Citizens and our
defense counsel.
Jay Adams continued, Citizens issued a competitive solicitation in the form of an Invitation to
Negotiate in December of 2011, and the Acuity contract did not actually begin until June of 2013.
We worked closely with Acuity to configure the system to meet Citizens' needs along with
converting all related system data into the new system. During this transition Citizens began to
learn more about how the Acuity platform was designed and built. During this learning phase it
was determined that Acuity operates a global system platform which means that all of their clients
operate within the same base system and, of course, they have the appropriate protection so that
the data cannot be accessed by unauthorized users. And really what this means is Citizens cannot
see any other client data, nor can any other client see Citizens' data. With this knowledge the
claims team engaged the Office of Internal Audits, IT, our vendor relations and others to
determine whether the Acuity disaster recovery and business continuity plan met Citizens' needs.
Jay Adams continued, the concern was that all of our litigation data existed in Acuity's matter
management system and if something happened to trigger a disaster or business continuity plan,
how would Citizens be able to recover their data and then have the Acuity operating system to
actually read and render the data.
Jay Adams continued, to remedy these concerns our vendor management office, along with
corporate legal have been working with Acuity over the past several months to finalize a
contractual amendment needed to secure these services. The proposed amendment will ensure
Citizens is able to maintain all litigation matter management and billing operations using
technology, infrastructure, and proprietary software comprising Acuity site and services in the
event of a disaster or other occurrence which renders Acuity unwilling or unable to revive,
maintain or support their site services.
Jay Adams continued, the cost of this additional disaster recovery and business continuity
service is $1,660,000 over the life of the contract, and it is made up of a onetime charge for
$200,000 and that is to get the agreement set up and to stand up the appropriate equipment,
followed by a monthly maintenance fee of $16,250. Are there any questions on this portion of the
Acuity action item?
Freddie Schinz inquired, Are you talking about the action item for the litigation management
services with the additional money requested?
Jay Adams replied, Yes, sir, this is part of it.
________________________________
Citizens Property Insurance Corporation Claims Committee
January 30, 2015
2
Freddie Schinz stated, the main question that I have and this may be out of your order, is
how in the world could we miss the budget by $4.6 million? I mean, how could that happen?
Jay Adams replied, can I answer that when we move on to the second point? I wanted to
make sure that nobody had any questions here.
Freddie Schinz replied, yes, you sure can, but that stood out to me. I would appreciate
very much if you could explain to the committee members and that is why I wanted to jump into
it right away on this portion of the Litigation Management Services. To miss it by $4.6 million that
is a lot of money. But anyhow, I would appreciate it when you get to that point if you would clarify
to each of the committee members so they can have a better understanding also.
Jay Adams replied, all right.
Jim Holton stated, I would add to that, Governor Schinz, that along the way here was it
not foreseeable, Jay, earlier that some of these issues would arise as we were getting into the
contract or is this something that, that was only recently discovered during this process, because
I would assume that going into this initial contract some of these issues should have been
foreseeable? And that is an ancillary question to Governor Schinz's.
Freddie Schinz stated, to me it appears that there is the unforeseen amount of litigation,
77 percent increase in litigation. And if that, in fact, is the primary reason for it going up, I think
that is a pretty simple explanation, because we are in such a litigious society, it is just absolutely
beyond my comprehension that we could have that kind of a jump. But I guess we are seeing it
across the state no matter what business you are in.
Chairman Aubuchon stated, I would certainly like to hear Jay address all of the concerns
expressed. So Jay, please proceed.
Jay Adams stated, overall there is going to be a request for $4.6 million to go into this
contract. Of that $4.6 million, $1.66 million is represented by this new amendment, an agreement
specific to business continuity and disaster recovery. I believe once we began to work with Acuity,
the first stage that we did was we converted all the legacy data. Then we started working on
building out their system to make it more dynamic for Citizens' needs. As we started that process
and really started to dig in and realized the size of Acuity, how many employees, what their
revenue base was, we really started asking some questions around the disaster recovery and we
felt that for Citizens' needs it was not adequate.
Jay Adams continued, therefore, we have been working again with our Office of Internal
Audit, our vendor IT partners and so forth to work out an agreement to ensure that we will always
have access to our litigation data. Part of this agreement provides us the Acuity code in order to
read that data in this disaster recovery plan. Now, to be specific to the overall increase, back in
2011 through 2013, that was when Citizens ballooned to its largest ever policy in force count.
When those policies grew, so did our claim volume. So during those same periods our claim
volume significantly increased the claim volume considerably grew as well over that period.
________________________________
Citizens Property Insurance Corporation Claims Committee
January 30, 2015
3
Jay Adams continued, our litigation typically lags anywhere from six to 12 months. So all
the negotiation and so forth was done on this contract back in 2011. We had to go through all the
conversion and get everything ready to move the old system to the new system. So we really did
not start this contract until June of 2013. Well, all of this activity and policy in force, claim count,
litigation was already starting to come in, meaning that the original contract mark was missed
right out of the gate because we were not able to determine that our policy growth would get to
where it was, and nobody had a crystal ball to be able to see that. And that in essence is really
where the shortfall has occurred. And if I could, what I would like to do is go through the rest of
this to try to give a more granular understanding, and then if there is any questions I will do my
best to address those.
Jay Adams continued, so in addition to the disaster recovery and business continuity
amendment, we also need approval for the additional spend under the current contract terms.
Acuity's billing model is based on a percentage total of legal spend determined by monthly invoice
amounts processed through the system. At the time of Citizens initial procurement, litigated
claims annual legal spend was estimated at approximately $30 million, which served as the basis
of the anticipated contract spend of the $1.7 million approved by the Board back in April of 2012.
As I mentioned earlier, the Acuity project was complex and lengthy in nature and took nearly two
years to complete the procurement and the implementation included the conversion of all legacy
data from the previous system. From 2011 to 2013, our pending litigation increased 77 percent
which followed the increase in policy in force and claims volume over that same period. And again,
this was the time at which Citizens had in excess of a million policies. Our current litigation spend
is trending at approximately $8 million per month, or $96 million annually.
Jay Adams continued, in order to compensate for the understated initial legal spend
estimate and to safeguard against future funding shortages for the remainder of the nine-year
contract, the anticipated contractual spend has been updated to reflect the most current trending
estimates. The new estimates will require an additional approval of $2,940,000 over the life of
the contract. And I would entertain any other questions that we have before I move to the
recommendation.
Barry Gilway stated, can I make a couple of comments?
Chairman Aubuchon stated, absolutely, Barry.
Barry Gilway continued, to answer your first question that you raised, and I really think as
Jay has indicated, I think you need to look at the two parts of this separately. I would say that you
raised a question as to whether we should have really understood Acuity's capabilities more
effectively when we initially entered into the contract. And I think Jay's answer to that would be
we most likely should have done a more thorough due diligence as respects to Acuity's current
capabilities and had a better understanding of what they could deliver. However, as I think the
Board is aware, this is an area where we have really been focused on improvement. We have
stood up a new vendor management organization. Jay has really significantly staffed and
improved the capabilities of his internal claims vendor management group. So I think your
________________________________
Citizens Property Insurance Corporation Claims Committee
January 30, 2015
4
observation, Mr. Chairman, on that aspect is probably accurate. We probably most likely could
have done and should have done a better job in evaluating these capabilities up front.
Barry Gilway continued, the second element here in my opinion is purely as a result of the
significant increase in both policy count and subsequent claims transactions. As you are well
aware in four years we grew from 600,000 policies to 1.5 million policies and no one at any point
in time really could have possibly considered that level of growth as being realistic. And now, of
course, we are on the way down. We will be down to 600,000 policies and below that going into
wind season, but as Jay indicates, there is a lag effect in terms of litigation, associated with that
reduction in policy count and the subsequent reduction in claims count. So I think the second
component is very understandable. I think the first component is an area where we probably
would do a far more effective job today if we were evaluating an agreement.
Chairman Aubuchon stated, to follow up on that, take it one step further. Do you have
any specifics on what we would do differently to avoid that miss in the future?
Barry Gilway replied, I think my observation would be if you take a look at Audit's
recommendations and this really is a result of an evaluation completed by Joe Martins'
organization, because they are concerned regarding the ability to operate in the event of a major
issue with Acuity. So what that speaks to really is more effective due diligence up front relative to
the size, scope and capabilities of Acuity when we entered into the original agreement. So in
terms of what we might do differently, I think a far more effective due diligence of the
organization up front prior to concluding the contract.
Chairman Aubuchon stated, okay, thank you, Barry. Committee members, any questions?
Jon Palmquist stated, you mentioned the budget is based upon a trend of $8 million per
month given the historical span. That was fairly high due to the various factors, and that the
contract is good through 2022. But do the budget projections reflect the fact that there has been
a decrease in sinkhole claims as well as a decrease in the policies in force via the take-outs?
Jay Adams stated, from a litigation perspective, these claims tend to trail our policy in
force or claim count. So the pipeline has more claims in it than what we currently adjust.
Secondly, these claims tend to have a long tail on them, meaning just because our claims count
drops down, we are projecting mid 30,000 for this year, the litigation spin is going to stay
consistent for a period of time until we can get that pending closed down. The sinkhole litigation
we have been working through settlement agreements and we have worked that down
considerably. We are probably 75 percent of the way through that, and that will make some
impact, but through the settlement agreement none of that is going to Acuity. So what is
happening is the insured is relinquishing the lawsuit when they enter the settlement agreement
based on these agreements.
Barry Gilway stated, if the litigation goes down, however, then the budget would
correspondingly drop, is that correct?
________________________________
Citizens Property Insurance Corporation Claims Committee
January 30, 2015
5
Jay Adams stated, I think in time. I don't think we are going to see an immediate change
in where we are in litigation spend. To kind of reflect back over last year, we invested a significant
amount of money in our leadership in our litigation team. We created segmentation, we worked
with our coordinating counsel. We have done a lot of things to improve our position with respect
to defense counsel spend, but I still believe we are 12 to 18 months out before we are going to
see any kind of significant decrease. Another thing of note, our new suits coming in have not
significantly slowed to the same level our claim volume has slowed. So as long as those new suits
are being submitted we are going to continue to incur these types of costs. So there is no short
term answer to that question other than we projected a flat growth out for a number of years,
and who knows long term how many of the policies will stay in Citizens. If we were to have a storm
our position could change. So our projection is based on really where we stand today.
Barry Gilway stated, Yes, a couple of statistics, Mr. Chairman. One is that, the litigation is
primarily a tri-county and Dade County issue. Dade County is 19 percent of our policies and 68
percent of our litigation. Although the policy count overall is dropping and dropping fairly
dramatically, the reality is that Dade County obviously is lagging. In other words, because of the
high litigation costs and because of the higher all other peril results in Dade County we are not
losing through depopulation a significant amount of the number of the policies that are driving
the litigation. So we are still suffering I think from the fact that our geographical concentrations
are still going to be contained for some time to come in the high litigation counties.
Chairman Aubuchon, Thank you, Barry. Members, further questions?
Jim Holton stated, Jay, you mentioned that Acuity's billing model is based on a percentage
of total legal spend. Does that include the attorney's fees for the coordinating counsel?
Jay Adams stated, No, sir. That is under separate agreement.
Jim Holton stated, Okay. Thank you.
Freddie Schinz stated, Jay, thank you for answering my question. I think you did an
outstanding job in answering that, and Barry, your comments were well received.
A motion was made and seconded to approve and recommend Board approval to
increase the total contract authority by $4,600,000; approve the contract amendment to
provide Enhanced Disaster Recovery and Business Continuity services; authorize staff to take
any appropriate or necessary actions consistent with this action item; and approve this action
item not to exceed $6,375,000. All were in favor. Motion carried.
Jay Adams stated, Thank you, Chairman, and members. Please turn to the Property Loss
Estimating tab in your binder. Claims Estimation Services are a critical business need for accurate
estimates for the structure and content on any customer claim in order to provide appropriate
settlement and payment to our policyholders. We rely heavily on these services in non cat and
cat environments. So the reality is every claim that comes in that will have any type of coverage
approved and paid must go through our estimating system. In April of 2014, Invitation to
________________________________
Citizens Property Insurance Corporation Claims Committee
January 30, 2015
6
Negotiate number 14-0006 was released and three responses were received. At the conclusion of
the ITN multiple protests were received and a decision was made to reject all bids.
Jay Adams continued, in September of 2014, Citizens reached a settlement agreement
which resolved the protest and Citizens reentered the negotiation with all three vendors and they
were reentered under the exact same Invitation to Negotiate. At the conclusion of the
negotiations a contract was awarded to Xactware Solutions, Inc. This is a budgeted amount. The
estimated cost for property loss estimating software and services for the complete contract term,
including all renewal options is $13 million. This action item seeks approval for Citizens to enter
into a new five-year base contract with (1) three-year renewal and (1) two-year renewal option
with Xactware Solutions to provide property loss estimating software services that will ensure a
minimum level of functional expectations necessary for Citizens to successfully and accurately
estimate the loss of a property claim.
Jay Adams continued, on April 1, 2014, Citizens issued the Invitation to Negotiate number
14-006 and our intent is to award that contract to Xactware Solutions, Incorporated. And before
I read the recommendation I would entertain any questions.
Jim Holton stated, a lot of these software, I think has been brought up before are on more
of a three-year term. Was the five-year term the best deal out there under the ITN?
Jay Adams stated, so the estimating solution for us is a very strategic software solution,
and having a longer term benefits Citizens because going from carrier to carrier or vendor to
vendor you can't open or reopen estimates between them and it creates some other additional
challenges for us. So it is our intent to enter into a longer term contract. We also have the
consideration of training of our independent adjusters. Our hope is that we will have 5,000
adjusters under our new solicitation, and if we change software vendors that is a significant
training effort to get all of those independent adjusters trained. And really the last layer to that
for us is, many of those adjusters will not show up to Citizens until a catastrophe event occurs,
and we need to make sure that those adjusters will be able to operate within our estimating
system. And, again, Citizens made the choice to go into a five-year contract period.
Jim Holton stated, yes, that makes perfect sense the way you explained it and I see that.
But it seems somewhat at odds with other software type platforms, but given the circumstances
I completely understand.
Jay Adams stated, just as another note, within our contract we have the ability to cancel
for convenience at any time. All we have to do is provide the appropriate notice. So just because
we entered a five-year doesn't mean we would have to sustain the full five years.
A motion was made and seconded to approve and recommend Board approval to
contract with Xactware Solutions, Inc. for property loss estimating software and services;
authorize staff to take any appropriate or necessary actions consistent with this action item;
and approve this action item not to exceed $13,000,000. All were in favor. Motion carried.
________________________________
Citizens Property Insurance Corporation Claims Committee
January 30, 2015
7
Jay Adams stated, okay, thank you, Chairman and Committee members. I would like for
you to please turn to the Sinkhole Stabilization tab in your binder. The sinkhole manage repair
program provides Citizens policyholders access to a network of experienced and credentialed
stabilization service providers. The decision to participate in the program rests solely with the
policyholder. Citizens received requests from multiple sinkhole vendors to be added to the
existing program. In order to add these vendors Citizens had to conduct its third Invitation to Bid
number 14-0028 on October 31, 2014.
Jay Adams continued, the result of this ITB was that nine additional vendors will be added
to the program. This is a budgeted item. The contract amount is not to exceed $50 million, and I
would like to remind the Committee that stabilization services is an indemnity payment to the
file, meaning that this is not budgeted out of our normal administrative expenses. The intended
contract will have a base term of three years, and at Citizens' discretion have one optional twoyear renewal term. The procurement method, as I spoke earlier, was the ITB number 14-0029 for
sinkhole stabilization manage repair services.
Jay Adams continued, responses were received and it is our intent to award the following
contracts under the residential category: Bozzi Builders, Cal Tech Testing, Expert Construction,
Feliciano Construction Corp., Freedom Sky Construction, Premier Technology Systems,
Professional Construction Specialists, Inc., SRS Services, Titan Foundation Repair Systems, LLC,
WHM Foundation, YD West Coast Home, Inc., and under the commercial category, Cal Tech
Testing. I would entertain any questions.
A motion was made and seconded to approve and recommend Board approval of the
recommended award and resulting contract including renewal periods for ITB 14-0029 to the
above list of vendors; authorize staff to take any appropriate or necessary actions consistent
with this action item; and approve this action item not to exceed $50,000,000. All were in favor.
Motion carried.
Jon Palmquist stated, what is the status the solicitation for the Independent Adjusting
Services? We talked about this at the last meeting and I believe the emergency extension is good
through May.
Jay Adams stated, yes, sir, we are good through May 31st. We are currently in the black
out period, and, as far as we are aware everything is still on track. Responses are due on February
the 6th.
Jon Palmquist stated, okay.
3. New Business
[meeting adjourned]
________________________________
Citizens Property Insurance Corporation Claims Committee
January 30, 2015
8