Florida’s Citizens Pushes Policy Changes to Address Rising Water Loss Claims

March 17, 2016

Citizens Property Insurance Corp.’s board of governors has approved a slate of recommendations aimed at reducing the impact of what it calls skyrocketing water-loss claims that could reverse progress made in returning Citizens to the state’s insurer of last resort.

Included in a handful of recommendations approved by the board, according to a statement from Citizens, is offering premium discounts to policyholders who choose managed repair agreements so that repairs can be completed by a Citizens-vetted qualified contractor. The board also approved placing sublimits on water loss claims if other incentives are not sufficient to reduce claims costs. Any changes would have to be approved by the Florida Office of Insurance Regulation.

Citizens said the changes are needed following recent unsuccessful attempts to pass significant legislative reforms aimed at curbing abuses involving assignment of benefits (AOB), under which policyholders give third party vendors the ability to control their claims following a loss. Florida legislators failed to pass legislation that would have addressed the issue before the 2016 session ended.

Citizens said water-loss trends connected to runaway AOB-based litigation threaten to reverse Citizens’ depopulation efforts as private insurance companies will begin raising rates or dropping policyholders, forcing them to return to Citizens.

“The unfortunate impact on Citizens policyholders will be premium increases in affected regions in 2017 and beyond, as well as potentially fewer private-market insurance options as private carriers reduce their exposure in the hardest hit areas,” said Barry Gilway, Citizens president, CEO and executive director.

Citizens said due largely to water-related losses, its policyholders in South Florida can expect to see annual rate hikes approaching 10 percent in 2017 and years to come. Estimated rates in those counties would have to nearly triple to pay for non-wind related losses. Under the 10 percent glide path, Miami-Dade policyholders could see average premiums climb from $2,800 to $4,000 in just five years.

Policyholders in other parts of the state, who were expected to have rate decreases in 2017, also may be subjected to higher rates based on higher water claims and increased AOB-related litigation, Citizens said.

2017 Indicated Rates

Using rates approved by the OIR for 2015, Citizens actuaries calculated current non-wind loss trends and determined the indicated rate need for Miami-Dade, Broward and Palm Beach Counties along with an overall figure for the rest of the state.

Citizens said it is working with OIR to identify and implement policy changes that would improve the claims process and avoid the need for across-the-board sublimits.

“For the past four years, we have worked hard to return Citizens to its role as a true residual insurer,” said Chris Gardner, chairman of Citizens Board of Governors. “Citizens remains committed to protecting surplus for the benefit of its policyholders when they need it. These loss trends, however, raise serious concerns.”

Citizens launched a campaign earlier this year to encourage homeowners to report a loss as soon as they know there might be damage. Call Citizens First, the insurer said, ensures it can promptly inspect any damages before permanent repairs are made. Currently, however, Citizens said it is receiving first notice of loss for non-weather water losses an average of more than 30 days after the loss occurs and, in many cases, is not informed of the loss until after repairs have been made. This delay is accelerating litigation, according to Citizens, which says it now receives an average of 620 new lawsuits a month.

Citizens said it supports keeping policyholders in charge of their claims by limiting the ability of third parties to assume control and promote litigation, and will support legislative initiatives to ensure this occurs in the future.

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