More mismanagement issues arise at Citizens Insurance

State regulators knocked Citizens Property Insurance Corp. this month for unnecessary travel costs, failing to negotiate on multimillion-dollar vendor contracts and spending more than $10,000 a month on vacant office space.

The Office of Insurance Regulation’s “market conduct examination” — which reviews Citizens’ operations over the last two years — offers the latest evidence of institutional problems at the mammoth state-run insurer.

According to the report, Citizens has mostly followed its policies, but in some cases those policies were too lax, leading to expensive repercussions for the company.

The report found that Citizens “does not appear to place any emphasis on price negotiation, instead relying on best and final offer” from its private contractors, who collect one-fifth of the $2 billion in annual premiums paid by policyholders.

Citizens is now pushing back against the state’s findings, arguing that it follows state law and has its own rigorous policies to get the best services at a competitive price.

“In situations not covered by [state law], Citizens conducts competitive solicitations using the same style of processes as state agencies (i.e., Invitations to Bid, Requests for Procurement and Invitations to Negotiate),” said spokesperson Christine Ashburn, in an email. Ashburn said Citizens president Barry Gilway has asked the state’s Insurance Commissioner to amend the report.

OIR also criticized Citizens for expensive travel and meals that surpassed federal and state guidelines for acceptable expenses. That finding comes on the heels of a Herald/Times investigation and a Chief Inspector General report highlighting lavish spending by executives, including $600-a-night hotel stays in Bermuda.

At the same time, Citizens has been squeezing homeowners by slashing coverage and raising rates, claiming that it does not have enough money to pay for a major hurricane strike.

“I really don’t get why they don’t have enough money,” said Gina Guilford, of Miami, whose homeowner’s insurance premium doubled last year. “Their rates have been rising steadily and there has been no major hurricane in years. Mismanagement is my guess. Why should any of us have to pay for a government-run insurance agency’s inability to manage funds and their employees?”

After media reports and the state’s Chief Inspector General documented Citizens’ corporate expenses, the company announced new policies to crack down on spending abuses.

Still, the OIR report fuels critics of Citizens and could hamper the efforts of some lawmakers who are determined pass major insurance reforms this year to help the state-run insurer raise its rates faster.

“This report further highlights the operational deficiencies, blatant disregard for state policies and lack of oversight and fiduciary responsibilities by Citizens Property Insurance,” said Rep. Frank Artiles, R-Miami, in a statement.

Artiles has been critical of Citizens’ aggressive push to shrink its rolls and has been part of a coalition of South Florida Republicans and statewide Democrats voting against cost-hiking insurance legislation.

As Citizens seeks to shed many of its 1.3 million policies, it has been bogged down by a series of corporate scandals. Last year, Gov. Rick Scott twice called on his inspector general to investigate Citizens, after the Times/Herald reported on lavish travel spending and allegations of corporate misconduct. The company’s Office of Corporate Integrity was disbanded after it uncovered evidence of waste at the company, including hundreds of thousands of dollars in severance packages paid to executives who resigned amid scandal.

A separate 2012 audit found that Citizens had inadvertently given away $2.5 million to another insurance company. The money has since been recouped.

The OIR report also found that Citizens spends nearly $8 million each year to lease office space for its 1,200 employees, including $10,894 per month for an “unoccupied” office in Tallahassee. Ashburn said the company is trying to either sublease the space or negotiate an early buyout to “reduce the overall expense.”

Government watchdogs say it’s not a coincidence that Citizens’ spending problems come as the company is sitting on a massive investment portfolio of $15 billion, including a record $6.2 billion in cash.

The OIR findings weren’t all bad: The report found that Citizens did an adequate job of processing claims, monitoring its investment portfolio and managing depopulation (reducing number of policyholders) efforts.

Still, the findings are likely to be used as evidence by lawmakers who say Citizens needs to get control of its operations before looking for new legislation to raise rates further on homeowners. A committee hearing on Citizens will take place in the Florida Senate on Wednesday.

“Wasting $8 million a year in leased office space, failing to award contracts to the lowest bidders, and running up the corporate credit card, proves that Citizens must clean house first before passing the bill on to Floridians,” said Artiles.

Toluse Olorunnipa can be reached at tolorunnipa@MiamiHerald.com or on Twitter at @ToluseO.

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