Heritage Revokes 14.9% Rate Increase Filing for Florida Homeowners

July 13, 2016 by

After review by the Florida Office of Insurance Regulation (OIR) and much criticism from Florida stakeholders, Florida-based Heritage Property & Casualty Company has withdrawn its request for an overall 14.9 percent increase of homeowners insurance rates in the state.

The insurer, which has been one of the biggest take-out companies of Florida’s insurer of last resort, Citizens, notified OIR on July 5 that it was withdrawing its request and would resubmit a new request at a later date.

Homeowners insurers operating in Florida are subject to annual rate filing requirements and all rate filings submitted under the homeowners line of business are reviewed by the OIR. Heritage submitted its overall 14.9 percent increase for HO-3 and HO-6 policies on April 6 for all new and renewal business as of Sept. 1, 2016. The total number of Heritage’s policies that would have seen an increase was 184,339.

The rate increase filing attracted much controversy and the Florida Consumer Advocate called for a public rate hearing, though the increase was under the 15 percent threshold required by Florida law for public rate hearings.*

OIR indicated through much back and forth with Heritage that the 14.9 percent rate increase filing would not be approved.

“The Office performed a thorough review of the rate filing submitted by Heritage Property & Casualty Insurance Company and held productive discussions with the company to address various items within the filing,” Amy Bogner, OIR spokesperson, wrote in an e-mail to Insurance Journal. “The outcome of this review resulted in Heritage electing to withdraw the filing. The Office looks forward to working with Heritage when it resubmits the filing again and to address any concerns that may arise on behalf of the consumers of Florida.”

The insurer cited assignment of benefits (AOB) for water loss claims as the reason it was seeking such a dramatic rate increase for the former Citizens policies. In South Florida, where AOB abuse has been most rampant according to OIR data call results and insurer claims data, Heritage requested the biggest increases.

In Miami-Dade counties, Heritage’s proposed increases for HO-3 policies were as high as 22.2 percent; it requested a 25 percent increase in Martin County. In Broward and Palm Beach, the requested rate increases were 21.4 percent and 22.4 percent.

In its Q1 earnings call, Heritage indicated that severe weather events, namely tornadoes, and an increase in water loss claims with AOB, which it described as an “adverse development,” led to the jump in Heritage’s loss ratio from 32.1 percent in Q1 of 2015 to 63 percent in Q1 of 2016. In the same period, its overall combined ratio rose from 56 percent to 93.6 percent.

The increase in water losses in the Tri-County area that were represented by an attorney, public adjuster or loss consultants were significantly higher than what the company expected and estimated for the quarter.

“The number one thing that drove adverse development was litigated claims, plain and simple,” Bruce Lucas, CEO of Heritage, said on the Q1 earnings report conference call. “These are claims that came in either attorney-repped, or were in an active litigation. We had claims that settled. We paid the policyholder. It was a closed claim. And then they come back three to six months later with an attorney, and they want more money. Those were the single biggest drivers of the adverse development. And that’s something that you just can’t predict.”

Heritage CFO Steve Rohdes said the actual development losses were $8.3 million higher than the company had expected to pay in the first quarter and led the company to revise its estimated personal lines ultimate loss ratio for accident year 2015. Heritage anticipates additional cases to be reopened throughout the year and increased its loss reserve by $6.2 million as a result.

“The snowballing effect that happened in the first quarter was something far beyond what was expected,” Rohde told those on the call.

Despite these factors, Heritage reported a net income of $7.4 million for Q1 2016 and a 10 percent increase in gross premiums written for Q1 2016 as compared with Q1 2015. It also increased its total policy count to approximately 328,500.

Heritage has not yet released its second quarter results, but set its Q2 earnings results call for Aug. 4 and will release its financial results for the second quarter after the market closes on Aug. 3.

In the end, however, Heritage’s explanation for the rate increase in its 801-page rate filing was not enough to convince OIR that the increase was justified. OIR also notified Heritage on May 23 that its filing to clarify policy form language to address water losses would not be approved as submitted. OIR said the filing from Heritage was considered more restrictive than what has been approved for other insurers attempting to curb AOB abuse in water loss claims.

Citizens was the first to work with OIR to address policy language and OIR encouraged other insurers to make what it has dubbed “me too” filings.

“While you do not have to submit the exact language approved for Citizens, the proposed language should not result in greater restrictions,” OIR said in its May 23 letter to Heritage.

Heritage did not respond to multiple inquiries from Insurance Journal about its rejected form or rate filings, but Heritage President Richard Widdicombe told the Orlando Sun-Sentinel that rates in the next filing would be “a lot less” than 14.9 percent, and probably in the 6 to 7 percent range statewide.

CEO Lucas said he is “optimistic” that the AOB issue will be addressed by lawmakers next session, despite their failure to do so the last four years.

The Palm Beach Post quickly praised the rate “rejection” by OIR, and slammed Heritage for the $27 million in salary, stock and bonuses Lucas is expected to earn in 2016 while at the same time saying it needs to raise rates by such a significant amount.

“The regulators did their job and worked on homeowners’ behalf. Let’s hope they do the same each and every time one of these Citizens offshoot companies comes looking to pad their profits at Florida consumers’ expense,” The Palm Beach post wrote in an editorial on July 8.

*This story has been updated to correct an error in an earlier version that stated OIR only reviews rate filings for rate increases over 15 percent. OIR reviews all rate filings submitted for the homeowners line of business, unless there is an exception allowed by law, such as for flood.

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