March 16, 2016
A member of Citizens Property Insurance Corp.'s governing board suggested asking Gov. Rick Scott to convene a "blue ribbon panel" to identify possible solutions to rising water damage costs and litigation that are spurring rate increases in South Florida and eroding financial health of insurance companies across the state.
At a meeting of the state-run insurer's Board of Governors on Wednesday, Citizens President Barry Gilway painted a dire picture of risks facing not only Citizens, but the for-profit insurers that have taken over about 1 million former Citizens policies through the state's depopulation efforts since 2012.
Gilway said an analysis of 15 major private insurers shows that non-weather-related water damage claims, and resulting lawsuits, are driving declines in the financial health of most of the companies. Many of the companies plan to raise property insurance rates next year, and some are planning to cancel policies in the tri-county region, he said.
"One company is attempting to cancel 9,000 policies mid-term," Gilway said. "A second company has identified 8,000 policies it wants to eliminate. A third company, 7,500."
Another company is requiring renewing customers to sign forms agreeing to 40-percent rate increases. "Several companies are restricting new and renewal business in the marketplace," and one company has stopped writing policies in 12 tri-county zip codes "indicating they threw up their hands and said, 'We can't do business there anymore,'" Gilway said.
After the meeting, Citizens spokesman Michael Peltier said Gilway did not identify the companies raising rates and pulling out of South Florida because the information was shared in a meeting that was closed to the public.
Citizens projects its own net income will decline sharply this year, to $5.7 million compared with $351 million last year, Gilway said. Net income this year was originally projected to be $177 million.
If companies stop writing policies in South Florida, customers they reject will have no choice but to return to Citizens — reversing the company's successful depopulation program of the past several years, officials said Wednesday.
Board chairman Chris Gardner warned of "massive repopulation in the absence of reform."
Gilway and members of the board lamented the failure of the state legislature in the just-completed session to pass any reforms to curb the losses. "We completely failed," Gilway said, adding that lobbyists for plaintiffs attorneys were stronger than lobbyists for insurers "without any question."
Citizens and insurance industry lobbyists have been warning about increasing water damage costs for several years. At issue is a practice called assignment of benefits. Citizens says repair companies persuade policyholders who suffer water damage emergencies to sign over their rights to pursue payment, then complete expensive repairs or file lawsuits demanding inflated fees before Citizens is notified of the claim.
Attorneys who specialize in representing homeowners counter that many insurers are often too slow to send adjusters to inspect damages or refuse to approve fair settlements to restore properties to their pre-loss conditions.
Board member Jim Holton suggested asking Florida's governor to get involved.
"Perhaps the next step would be to … approach the governor about convening a blue ribbon panel statewide to investigate this with leaders from industry, [the state Office of Insurance Regulation], Citizens, many of the carriers and even the Florida Bar."
Such a high-profile investigation might raise awareness of the gravity of what Gilway calls a crisis, Holden said. "And that might be an idea to really spotlight this issue as well as we get ready for the next legislative session to get some action," he said.
Gilway said he would be "highly supportive" of such an idea and said Citizens is creating its own panel of attorneys who represent both policyholders and insurers to determine "the best way to really react with, interact with and have an impact on" trial lawyers filing the bulk of the suits.
Asked on Wednesday about Holton's suggestion, a spokeswoman for Gov. Scott said he would need time to review it.
In December, Citizens' board approved asking the state Office of Insurance Regulation to OK a series of policy restrictions intended to reduce water damage claims. They included a 72-hour deadline to report claims, a $3,000 limit on emergency repairs unless otherwise authorized, language limiting tear-out and repair to only sections of a home needed to access the plumbing or appliance that caused the covered loss, and a statement that plumbing failures won't be covered if damage results from age, deterioration or lack of maintenance.
State regulators are expected to decide whether to approve those restrictions by March 26.
On Wednesday, the board approved other weapons in Citizens' fight against rising claims costs.
Contractor Connection, a managed repair company with a network of more than 4,800 contractors, was approved to run a voluntary managed repair program Citizens plans to roll out in May.
The program, modeled after several run by private insurers, would award discounts to policyholders who agree to choose repair contractors from a list pre-approved by Citizens. That's the "preferred" approach, said John Rollins, the company's chief risk officer.
And if state regulators fail to approve Citizens' requested policy changes, they might face "the alternative approach" approved by the board Wednesday: Policies of customers who don't choose the voluntary managed repair program would include a $10,000 limit on water damage claims.