Florida Department of Financial Services

Florida's Auditor General Thursday released its audit of Citizens Property Insurance, pointing out management and policy failures of the financially strapped state-run company.

Among 17 specific points, the audit said Citizens' management failed to document that its rates were actuarially sound to cover possible losses, had no code of conduct to curtail conflicts of interest or personal gain for officers, didn't take competitive bids on much of its outside work and had poor customer service and claims handling.

Two years of active hurricane seasons have battered the insurer-of-last-resort that has been criticized for its poor customer service and skyrocketing rates that include a proposed average 80-percent increase for premiums charged coastal homeowners.

Floridians are paying for the company's losses with extra charges on all property insurance premiums to cover a $516 million deficit in 2004 and an estimated $977 million for 2005 losses.

Citizens' President Bob Ricker said changes are under way , while acknowledging that the company was ill-prepared to handle the onslaught of hurricanes the past two years.

''We will use the findings of this report and other internal and external reports and audits to continue to improve our infrastructure, processes and procedures,'' Ricker wrote in a Jan. 23 letter to Auditor General William Monroe.

In its formal response to the audit, Citizens wrote of how it was overwhelmed in 2004.

''Faced with more than 120,000 catastrophe claims, and 30,000 or more new applications for coverage filed each month, which Citizens is obligated by law to insure, it became clear that the lack of infrastructure and heavy reliance on outsourcing was misplaced.''

Claims were mishandled. The audit found in its examination of 219 claims files there ''was often a significant lag between the filing of a claim and the assignment of the claim to an adjuster.'' There were also ''significant delays'' closing claims.

Often, Citizens record keeping made determining time frames impossible. In 42 percent of the 2004 claims, the auditor was unable to determine when an adjuster was assigned. In 15 percent of the files examined, it took more than 29 days. Nearly a quarter of the 2004 claims took more than six months to close, the audit found.

Citizens had no code of conduct to direct board members, management or employees until Oct. 20, 2005.

''It is essential to the proper conduct and operation of Citizens that board members, management and employees be independent and impartial and that service in such roles not be used for personal gain,'' the audit said.

Former officer Paul Hulsebusch left Citizens last year after a civil suit claimed he steered business to friends and business partners. He's the subject of a grand jury investigation. Other officers left last year after it became known they were setting up private businesses to take Citizens' work.

Citizens had no appropriate control or bids on much of its contract work.

The audit reviewed 17 contracts for Citizens work totaling $33 million. Of those, 16 did not have competitive bids.

The audit included a survey of 392 policyholders and an analysis of complaints made to the Department of Financial Services.

There were nearly 9,500 complaints lodged against Citizens relating to 2004 hurricane losses, representing 7.6 percent of the claims it had. For the rest of the insurance industry, the complaint-to-claims rate was 3.2 percent.

Chief Financial Officer Tom Gallagher said the audit would prove helpful in making changes to Citizens and noted that many of its conclusions matched changes he and others have been calling for.

''With additional support from an audit called for by the Legislature last year, I'm confident that state lawmakers will join me in approving reforms that will result in greater transparency, oversight and accountability of Citizens,'' Gallagher said in a statement.