TALLAHASSEE -- When the president of Citizens Property Insurance Corp. learned that his chief financial officer had used corporate funds to finance a luxurious weekend at a $633-a-night resort in Bermuda, he initially described the expenses as “absolutely appropriate.”
But President Barry Gilway changed his tune after a Herald/Times story and a subsequent inspector general report documented evidence that executives regularly ran up huge expenses on the company credit card, traveling and dining at four-star locations across the globe.
“As guardians of public funds, we must hold ourselves to a more rigorous standard,” he said.
It was a full-throated mea culpa, following sharp rebukes from Gov. Rick Scott, state Chief Financial Officer Jeff Atwater and top lawmakers. But behind the scenes, Gilway was quietly handing out huge salary raises for the well-traveled CFO, Sharon Binnun, and several other executives who run the state-backed company.
As news stories were documenting her $35,000 tour through four-star hotels in four different countries, Binnun was enjoying a new $31,000 pay hike, boosting her salary 14 percent to $255,000.
Several other top officials got pay hikes of more than $25,000 late last year as well, even as the company’s executive suite was enmeshed in corporate scandals and reports of questionable spending. Citizens says the raises were justified because of increased responsibility and “parity” with the private market.
Meanwhile, tens of thousands of other state employees have gone six years without a pay raise. This year, the governor has proposed $2,500 pay raises to public school teachers, a move top legislative leaders have yet to endorse.
While company execs enjoyed big salary hikes and generous perks, Citizens was pushing homeowners to pay higher insurance rates and slashing their coverage.
“I thought I could take some consolation in the 45 percent [premium] increase because I would be getting better coverage [turns out to be less],” Coral Gables homeowner Patricia Temple wrote in a letter to her state senator this month. “That was quickly destroyed [after] learning money was recklessly and unnecessarily spent on lavish dinners, luxury hotels, etc. — partly paid with my money.”
Temple, an 80-year-old retired librarian whose insurance premium went up $2,100 last year, was featured in a 2012 Herald/Times series on Citizens’ statewide home reinspection program. The program hit more than 250,000 homeowners with average premium increases of about $800, costing them nearly $200 million. That’s on top of the $250 million from a 10.8 percent statewide premium hike approved last year.
Citizens says the rate increases are necessary because it needs to raise more money in order to avoid “hurricane taxes” that would be levied on Floridians after a massive storm. Despite seven straight years with no hurricanes, Citizens officials say the company’s $15 billion portfolio is not large enough to handle the kind of apocalyptic storm that happens once in a century.
While Mother Nature has spared Florida from hurricanes since 2005, Citizens has taken in billions of dollars in premiums from homeowners. Citizens also received a $715 million taxpayer bailout and the promise of millions more if it ever runs out of money again. Awash in a record amount of cash and bolstered by a taxpayer safety net, the state-run insurer has been operating more like a private company than a tax-exempt government entity.
For the company’s execs, that has meant large pay raises, luxury hotel stays, international plane tickets, limousine rides and wine-fueled dinners — all paid with the corporate credit card.
A Citizens spokesperson said the company’s expenses are not responsible for pushing up rates, but did not elaborate.
Gilway, who earns $350,000, announced $2.1 million in salary increases for employees shortly after taking the reins of the company last year. (He also raised employee healthcare contributions. Company executives previously did not have to contribute to their healthcare premiums.) Gilway said Citizens needed to raise salaries to remain competitive with the private market, where he had worked for four decades.
Aside from the $2.1 million in 3 percent merit raises, Gilway rewarded his top execs with raises in excess of 10 percent. Doling out more than $150,000 to Citizens’ top brass was one of Gilway’s first decisions after taking over the state-run insurer of 1.4 million last summer.
Struggling homeowners and government watchdogs see the expenditures and worry that the company has been mismanaging its surplus during the seven years of hurricane-free seasons.
From booze-filled company outings to $2.5 million Citizens accidentally gave to another company, there’s growing evidence that those years have been marred by waste and profligacy.
Now, let’s eat
The sun was beginning to set after a company meeting in Orlando last June, and Citizens’ board had just chosen to appoint Gilway as its new president. He secured the gig after answering a number of pointed questions from the board, including how he would shrink Citizens. His answer: Raise rates.
“The attraction has to be rates and getting them at an appropriate level so that we can attract private industry,” he said.
Satisfied with that answer, the board hired Gilway, ended the meeting and then set about making dinner plans.
The spot: Ocean Prime, an upscale seafood and steak restaurant that boasts “an award-winning wine list.”
The tab: $918.34 for seven or eight officials, who dined on gourmet fare and gulped down $369 worth of Grey Goose vodka and red wine. Board Chairman Carlos Lacasa later reimbursed the company for most of the alcohol.
Although two or three of the executives had rented cars for the board meeting, the company paid $160 for car service to chauffeur them to the restaurant and back.
State law caps the amount of money government employees can spend on food and travel, and discourages government employees from expensing the purchase of alcohol.
Not Citizens executives. They have stated that those rules do not apply to the state-run company, ignoring auditors who said the company should comply with government spending limits.
Operating in a legal gray-area, Citizens’ employees have taken advantage of the company’s loosely written travel policy and its prevalence of corporate credit cards. Some of the executives who were most liberal with corporate credit cards were rewarded with hefty pay hikes after news of the spending issues broke.
The company spent more than $1.3 million on travel and meals in the first eight months of 2012. Citizens offered explanations for some of the spending on Friday, saying execs were operating under company policy. The company recently moved to crack down on travel expenses, implementing stricter new policies.
This is not the first time Citizens has paid out substantial financial awards to executives embroiled in scandal.
In the past eight years, Citizens has paid more than $750,000 in severance packages to employees, including five-figure checks to executives who resigned after misconduct allegations.
The company’s former vice president of underwriting walked away with an $80,000 severance package after he was implicated in a sex scandal with an underling. He resigned and Citizens helped him collect unemployment benefits.
Citizens’ former chief administration officer, who resigned abruptly last year after allegations of falsified documents and unlicensed practice as a lawyer, continued to receive salary and benefits for five months after leaving the company.
The internal investigators who flagged the large severance packages and the altered documents were fired shortly after filing their report. Citizens says the firings were part of a restructuring, but Scott’s chief inspector general is investigating whether they were retaliatory.
Citizens’ General Counsel Dan Sumner, who was implicated multiple times in the investigation, received a $25,000 raise just days after the investigators were fired. His salary shot up 12 percent to $215,000.
A January report by the Office of Insurance Regulation found that Citizens had spent $604 million on contracts with private vendors, often in no-bid deals and without pushing for a more competitive price.
Citizens “does not appear to place any emphasis on price negotiation, instead relying on best and final offer,” the report stated. State regulators found that contracts with private vendors ate up 20 cents out of every $1 paid to Citizens by policyholders. In most cases, Citizens gave the contracts without soliciting bids, and often chose vendors that were much more expensive than other options.
Citizens initially disagreed with the findings and said it follows a “rigorous set of procurement procedures” to get the best prices and services on its contracts. But on Friday, the company announced new, stricter policies for its vendor contracts.
The company’s chief insurance officer, who handles contracts as head of the Purchasing Department, received a $31,000 raise last year. His pay increased 14 percent to $255,000.
A separate audit report found that Citizens inadvertently paid another insurance company $2.5 million in a botched “depopulation” agreement. The money has since been recouped.
Executives responsible for the company’s depopulation efforts — a Citizens strategy to move policyholders to private insurance companies — also received five-figure raises after the $2.5 million mistake was unveiled.
Many of the executives rewarded with raises were behind new initiatives to raise insurance costs for homeowners and scale back their coverage.
Those initiatives have hit homeowners hard in places like South Florida and the Tampa Bay area, which have the state’s highest insurance rates. In Miami-Dade County, the standard Citizens policyholder pays an average of $3,300, eating up 5 percent of the typical family’s income. That’s more than twice the statewide average.
A bill being drafted by the Legislature — and supported at least in part by Citizens — would push those costs even higher, in an attempt to force homeowners into the private market.