Citizens’ Board of Governors approved recommended rates and policy changes for 2018 on Tuesday -- all of them "reflecting rising nonweather water losses, assignment of benefits abuse and out-of-control litigation that, left unchecked, will force rate hikes for years to come."
By unanimous vote, board members of the state's insurer of last resort recommended a 5.3 percent statewide increase for personal lines policyholders -- homeowners, condominium unit owners and renters -- with most increases concentrated in three South Florida counties where water losses, assignment of benefits abuse and litigation are disproportionately severe.
Because the 2017 Legislature failed to deal with assignment of benefits abuse in particular, and legislation that would reform the law, the Governing Board said it had little choice.
In a written statement after the meeting, board members announced they also approved a series of policy changes aimed at reducing claims costs for nonweather water losses that have been pushing rates higher for South Florida customers over the last few years. If approved, the changes would take effect in February 2018.
Among the major policy changes is a $10,000 cap on water loss repairs for customers who decide not to participate in the Citizens Managed Repair Program, which links customers with a network of vetted contractors. The voluntary managed repair program, coupled with a free emergency water removal service, will become available to new Citizens policyholders after July 1, 2017, and for existing customers when their policies renew.
The company says other policy changes include expanding obligations to third parties that accept an assignment of benefits. Currently, contractors who accept an assignment are not bound by the same obligations, including allowing Citizens adjusters to inspect a claim in a timely manner or providing proof that a loss has occurred.
“These proposed rate increases and product changes are critical for Citizens’ efforts to bring some relief to a market that is being made increasingly expensive by unnecessary litigation and out-of-control water loss claims,” said Chris Gardner, Chairman of the Citizens Board of Governors. “Unfortunately, we are making it more expensive for many of our customers to own a home.”
The 2017 legislative session concluded in May without making significant changes to state law regarding assignment of benefits (AOB) and the so-called one-way attorney fee statute that are driving up costs that must be paid through higher premiums. Citizens joined other insurers, business and consumer groups pushing for reform.
AOB was such a hot topic in Florida going into the legislative session that it dominated discussions on almost every panel and between attendees of the Florida Chamber of Commerce’s Florida Insurance Summit Feb. 1-3 in Miami. A glance at the numbers from various Florida sources tells the story:
- Frequency of water claims rose 46 percent and severity increased 28 percent between 2010 and 2015 (OIR 2015 Data Call)
- AOB property insurance claims totaled 28,000 in 2016, up from 843 in 2010 and 405 in 2006 (Florida CFO Jeff Atwater)
- Florida’s Citizens saw a 30 percent increase in new lawsuits filed against the insurer between January and November 2016 (Citizens)
- 50 percent of Citizens’ water-related claims resulted in litigation in 2016, up from 15 percent in 2011 (Citizens)
- As of October 2016, Citizens had 9,306 litigated claims pending and continues to receive an average of approximately 850 new claims per month (average of approximately 980 per month from August to October)
- In South Florida, the average AOB claim costs more than $32,000, nearly triple the average of non-AOB claims (Florida Consumer Protection Coalition)
“It’s ironic that our rates for wind coverage are coming down, but Citizens policyholders in South Florida still must brace themselves for continued rate increases,” Gardner said. “We don’t want to raise premiums, but Citizens is obligated by statute to set actuarially sound rates.”
The 2018 rate proposal continues a recent trend in Miami-Dade, Broward and Palm Beach counties. Homeowners with multiperil coverage in Miami Dade County, for example, will see an average increase of 10.5 percent, or $359, from 2017 premiums. Broward and Palm Beach county homeowners will see rates increase by 10.4 percent and 9.3 percent respectively.
Outside of the Tricounty area, many policyholders will see rates decrease or remain flat. Citizens’ homeowners policyholders in 56 of 67 counties will see average rates decrease under the set of proposed rates.
Proposed rates and policy changes must be approved by the Florida Office of Insurance Regulation, which oversees all Florida property insurers. Both the new rates and policy changes would take effect in February 2018.
“We were hoping for legislative change and a surgical solution,” said Barry Gilway, Citizens president/CEO and executive director. “Given that this did not occur in 2017, we cannot wait for the trends to worsen and take no corrective action.”
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