Citizens COO Quits; Investigations Ongoing After Kickback Accusations

Citizens Property Insurance Corp. Chief Operating Officer R. Paul Hulsebusch is facing accusations by Universal Risk Insur-ance Services in Houston, Texas, that after last year’s hurricanes he sought kickbacks from insurance adjusters. During the same week, consumers and daily newspapers also criticized Citizens efforts to increase rates; and amid these controversies, Bob Ricker, president and CEO appeared in Tampa to tell the Florida Suncoast Chapter, Chartered Property Casualty Underwriters Society that Florida’s insurer of last resort provides a safety net for the ever-increasing number of Florida property owners who can not find insurance.

Hulsebusch resigned two days after Universal Risk alleged in a Texas lawsuit that he sought kickbacks from adjusters. The lawsuit said Universal forwarded information to Florida’s state-backed insurer of last resort.

Florida’s CFO Tom Gallagher immediately launched an investigation into Universal’s claims that Hulsebusch accepted at least $25,000 in goods as a bribe from a competing adjuster that resulted in a lucrative contract with Citizens.

“Due to the serious allegations made against former Citizens’ Property Insurance Corporation’s Chief Operating Officer Paul Hulsebusch, I have directed our department’s fraud detectives to immediately launch a criminal investigation and subpoena all documents related to his case,” Gallagher said. “These developments are especially troubling because Floridians’ claims may have been mishandled as a result. We will pursue this investigation fully to ensure complete accountability for Florida’s consumers.”

Hulsebusch was assigned last year to overhaul the claims operation after Citizens received a landslide of complaints about its slow and mistake-prone phone response to handling claims from hurricanes Charley, Frances, Ivan and Jeanne.

Responding to calls from the St. Petersburg Times, Bob Ricker, Citizens executive director said the company takes the allegations seriously and has launched its own internal investigation.

“This claim will be thoroughly reviewed, and at the conclusion of this investigation, all necessary steps will be taken to ensure that all Citizens employees maintain the highest level of professionalism,” Ricker said.

According to the Times article, the allegations come 11 months after Ricker hired Hulsebusch as a consultant to turn around Citizens’ embarrassingly sluggish claims processing after the 2004 hurricanes. In February, he was hired as the chief operating officer with a $150,000 salary. An insurance executive from a New Jersey company, Hulsebusch blamed the delay in processing hurricane claims on Citizens’ network of third-party adjusters, saying they’d defected to other companies that were paying more.

Universal Risk claims Hulsebusch’s haphazard management and his system of rewarding adjuster contracts based on bribery was at fault. The firm is seeking $3.6-million in lost, past and future profits, and an unidentified amount of punitive damages from Citizens, Hulsebusch and Quantum Claim Services, which allegedly paid the bribe. Neither Quantum’s attorney nor company owner Rodney Harrell of Richmond, Texas, who is a defendant, could be reached for comment.

The current controversy, according to Universal, has its roots in the panic of last year’s hurricane season. Universal claims it responded in good faith when Hulsebusch called seeking as many adjusters as it could spare to help process Citizens’ mounting claims.

Universal said the rate schedule agreed to over the phone with Hulsebusch before sending adjusters to Florida was never honored nor was a written contract forthcoming. Nonetheless, Citizens gave Universal the responsibility to assess more than 1,000 claims. Universal lost much of that work after Quantum paid “a series of bribes to Paul Hulsebusch … in return for substantial work assignments resulting in substantial revenue for Quantum and substantial lost revenue to Universal Risk,” the lawsuit charges.

Universal Risk’s attorney, Scott Rothenberg, said Universal deployed adjusters in Florida when Hulsebusch approached Universal asking for a kickback of 3 percent of the adjustment fees.

“The request was made and it was refused,” Rothenberg said. “All of a sudden virtually every claim Universal was adjusting was reassigned.”

Bruce Douglas, Citizen’s board chairman, said at Citizens Sept. 16 board meeting in Orlando that the company is cooperating in a criminal fraud investigation launched by CFO Gallagher’s office. He said the company has retained a forensic auditing firm and an outside attorney for an internal investigation. “We will 100 percent be cooperative,” he said.

Ricker stands up for Citizens

Citizens provides a safety net for the ever-increasing number of Florida property owners who can not find insurance, Bob Ricker, Citizens president, told members of the Florida Suncoast Chapter, Chartered Property Casualty Underwriters Society, at the group’s September meeting in Tampa, Fla.

Ricker said that if a homeowner or business owner wants Citizens, Florida’s insurer of last resort, to issue a policy, the customer must sign an affidavit certifying they were unable to find traditional insurance elsewhere.

“As long as the property isn’t on fire, we have to accept the policy,” Ricker quipped.

Ricker explained that legislators don’t grasp the magnitude of the losses, not even when a hurricane like Dennis hits a two-block area in Walton County and destroys $400,000 to $700,000 homes, and all the policyholders are with his company-he said that in that case Citizens’ liability was more than $60 million.

Ricker described why and how the Joint Underwriting Association Windpool was formed soon after Hurricane Andrew struck South Florida. JUA was established as a tax exempt entity that added $80 million to surplus every year. The JUA was dissolved in the late 1990s and Citizens took over for it.

“We were really in trouble in 2003 when board members said our mandate is to put ourselves out of business,” Ricker said. “That is a dangerous, deadly public policy to live by.”

Today, with wind policies harder and harder to find and companies dropping policyholders in Florida, Ricker said their goals have changed. “We are here to stay as an important safety valve,” he said. “We are now adding staff and trying to absorb the needs of the market.”

When Citizens started, it had 1,012 policies in force in Tampa Bay and St. Petersburg. Ricker said that today, sinkholes have become a major concern and the company has more than 150,000 policies in the same area.

Ricker said mobile home policies are a major market, indicating Citizens wrote 200 to 400 policies in 2004.

“Right now we are writing 4,000 to 5,000 mobile home policies per month,” Ricker said. “That’s because carriers are unwilling to write policies for mobile homes and everyone is getting out of the business.”

Ricker described Citizens as a schizophrenic organization. “We are the largest property insurer in Florida, yet our mandate is not to grow!”

Blames outsourcing

Ricker described Citizens experiences last year with four hurricanes a case study in the perils of outsourcing. He said there were 11 firms handling 1.7 million claims filed and settled with Citizens policyholders.

“It all boils down to not having enough qualified adjusters,” Ricker said. “If you were breathing, you were an adjuster. Then down the road, when complaints started coming in we led in the complaint category, simply because we had to use less qualified claims adjusters.”

He explained that last year about 50 to 100 adjusters worked to settle Citizens claims, but at the same time worked for many firms. From now on Ricker will require adjusters to work exclusively for Citizens.

Citizens had more than 5,000 claims from Hurricane Dennis in the Panhandle, and many were from homeowners that had not fixed partial damages from 2004. He said they closed out 80 percent of those claims within the first 60 days.

Dennis missed southwest Florida, and there were no claims there; but in Dade County they had more than 500 claims, which according to Ricker are still being settled using public adjusters. He said those claims will be the last ones closed.

Ricker expects 25,000 claims from Hurricane Katrina’s pass through South Florida. Due to the new state requirement of seasonal claims he anticipates a lot of paperwork but suspects due to Katrina’s low severity, while a lot of people will be more claims-conscious, most of the claims made will be below the deductible.

Board wants rate hikes

A vote on whether to request a 37 percent statewide increase on homes insured by Citizens Property Insurance Corp. was tabled in Orlando by the board of governors, which will reconsider the proposal in November.

The board approved a 6.8 percent surcharge on annual premiums for policyholders, an attempt to put the company on equal footing with other insurance companies’ customers, who also had to pay the surcharge to pay off the $516 million deficit Citizens incurred last year from hurricanes.

Board members said they were wary of how the new surcharge, plus another rate hike, might be perceived by consumers and proposed sending mailings to customers and other insurance companies explaining.

The rate proposal could have raised rates as much as 32.5 percent in Palm Beach County, 50 percent in Broward and 68 percent in Miami-Dade.

The proposal includes plans to change how much Citizens charges to cover certain homes. Two suggestions the board will have to consider: Have Citizens charge as much as 20 percent higher premiums for customers whose homes are more than 40 years old, and tacking on larger increases for people whose homes are insured for more than $200,000, because many private companies also shy from insuring expensive homes.

Those percent increases would vary-as low as 0.1 percent for someone whose
home is insured between $200,000 and $225,000, and as much as 16.2 percent for someone whose home is insured for more than $1 million.

Bob Ricker Bob Ricker, Citizens president, discusses his company’s role in the insurance industry with members of the Florida Suncoast Chapter of the Chartered Property Casualty Underwriters Society at the group’s September meeting in Tampa.

As long as the property isn’t on fire, we have to accept the policy.”