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Citizens Insurance: Records shed new light on water-claims 'crisis'

News Article

March 4, 2016

Palm Beach Post

Florida’s state-run insurer is warning of 10 percent annual rate increases for years to come in Palm Beach and other South Florida counties because of what its CEO calls a “true crisis” in water-damage claims.

But such losses actually decreased 20 percent since 2013, records requested by The Palm Beach Post show.

Citizens Property Insurance Corp. officials say yes, but its number of customers is declining even more rapidly so the costs — down to $299 million in 2015 from $378 million in 2013 — have a much bigger proportional impact on rates.

Yet there’s no mention of a similar amount of spending that also looms proportionally large in a shrinking Citizens: $285 million spent on offshore reinsurance in 2015.

That optional back-up coverage, questioned by the state’s insurance consumer advocate, turned out to be great business for Bermuda reinsurers. But for policyholders, it accounted for close to one in four of their premium dollars without paying for a single claim.

Reinsurance does affect rates but “there is no link” between it and rate indications for perils like water claims, a Citizens spokesman said.

Citizens warned last week the impact from water losses on rates is higher than earlier projected. The picture will not improve “barring meaningful reforms targeting assignment of benefits and claims filing abuses” under consideration by the state legislature as the session winds down, Citizens said.

“This is a true crisis,” Citizens president Barry Gilway said. “I’m not sure people are fully aware of that. The impact of these numbers will be the maximum increases allowed by statute for the foreseeable future.”

The current average premium in Miami-Dade is $2,800 and could easily grow to over $4,000 over the next five years even with a state cap on the company’s rate increases at 10 percent a year, Citizens said.

When it comes to risks besides windstorms and sinkholes, rate indications for 2017 point to a 10 percent decrease in the rest of the state — but an increase of 166 percent in Palm Beach County, 187 percent in Broward County and 190 percent in Miami-Dade, company officials said.

Efforts to address the issue have not met much success in the courts or the legislature.

This year, legislation has struggled through a phalanx of heavy lobbying by interest groups on opposing sides. One bill attempts to impose restrictions such as limiting referral fees involving contractors who get consumers to sign over control of insurance payments in what is known as “assignment of benefit.”

Certainly, most consumers don’t want to pay for inflated claims at their neighbor’s house — or their own.

“When you’re up to your ankles in water, you’ll sign anything,” said Eleanor Posner of Delray Beach.

She said after her sink overflowed, she called a clean-up firm that asked her to sign over control of her insurance benefit. They would not start work until she did, she said.

Her insurance company later paid a little less than $4,000 for work it considered justified, but the firm’s total bill was more than $11,000, she said. The language of the agreement left her responsible for the difference, as she understood it. She’s waiting to find out what happens next while the restoration company takes the insurer to court, she said.

Her advice: Call your insurance company first, she said.

Attorneys, contractors and others paint a different picture.

They argue representation by a third party can help consumers get the full and appropriate payment for claims. They say crisis warnings are overstated, interpreting a state report to show water-loss costs have increased a not-so-alarming 8 percent a year since 2010.

But back at Citizens, there’s no mention of the other spending elephant in the room. Citizens, which has a surplus of more than $7 billion and the backing of a state hurricane fund, spent nothing on private reinsurance five years ago.

State insurance consumer advocate Sha’Ron James has expressed concerns to the state insurance office about whether the reinsurance spending was justified. Nicole Vinson, a Tampa attorney who sues insurers and heads the group Policyholders of Florida, said Citizens should have put the money into its surplus instead.

The spending shipped hundreds of millions of dollars offshore at a time when the company’s risk exposure was rapidly falling. The chances were growing more and more remote the back-up coverage would ever be needed, even as Citizens officials called it a success because state policyholders would not face a “storm tax” or assessment even if a 1-in-100 year storm hit. That’s a storm with a 1 percent chance of happening in any given year.

Policyholders had to listen closely to get any hint this could be affecting the rates they pay — and will pay.

“I’m not second-guessing the reinsurance buy,” Gilway said at a December board meeting, but “it’s clear we need to be as flexible as we can” on future purchases. Citizens is locked into multi-year deals for much of the coverage.

“We were not ready,” he acknowledged, for a big drop in the company’s risk exposure as more customers moved to private insurers.

Citizens has shrunk to less than 500,000 customers from a high near 1.5 million a few years ago. About one in 10 customers is in Palm Beach County.

No hurricane has hit Florida in a decade, yet regulators approved a 3.2 percent rate increase for Citizens in 2016, and a 4.6 percent increase in Palm Beach County.

Now Citizens is warning of 10 percent rate increases as far as the eye can see.


Water claims losses at Citizens

2013: $378 million

2014: $340 million

2015: $299 million


Note: Includes costs for homeowner water-damage claims including litigation.

Source: Citizens Property Insurance Corp.