|Date:||May 29, 2017|
Although a major hurricane hasn’t unleashed its full fury on Florida in more than a decade, property insurance rates are climbing statewide because of another kind of storm — claims abuse.
Insurers continue to face major challenges due to abuse, shrinking their profits and driving up their rates.
Those challenges are of heightened concern as another hurricane season approaches that’s expected to be busy, with the National Oceanic and Atmospheric Administration expecting five to nine hurricanes to form. The Atlantic season runs from Friday to Nov. 30.
Since 2012 insurers have seen a surge in fraudulent claims, primarily involving the “assignment of benefits,” leading to big losses.
The practice allows policyholders to assign their claims to a contractor doing the repairs, giving the contractor the right to collect payments directly from the insurance company.
When claims are assigned, they’re often more expensive and can lead to costly legal battles over payment. They’re one of the biggest reasons Citizens Property Insurance Corp., the state’s insurer of last resort, posted a loss of $27 million last year, said Michael Peltier, a Citizens spokesman.
“The disturbing part is we are expecting an even greater loss for the upcoming year,” he said.
Insurers have seen a rise in water-damage claims, especially in South Florida, involving broken pipes, dishwashers and water heaters, not natural disasters such as hurricanes. Insurance companies blame it mainly on fraudulent activity.
“The private market is experiencing the same trend that Citizens is, from all of the indications that we’ve gotten,” Peltier said. “It’s not just our problem.”
What’s significant, he said, is that state law allows Citizens to raise its rates only by a maximum of 10 percent a year, but private companies aren’t under the same restrictions.
A few weeks ago, the state’s Office of Insurance Regulation approved a statewide average rate hike of 16 percent for People’s Trust based in Deerfield Beach, when it asked for only a 14.5 percent increase. The reason? State regulators determined the requested increase wasn’t enough to cover the company’s losses in Broward and Miami-Dade counties.
As of Dec. 31, People’s Trust had 8,886 residential and commercial policies in force in Lee and Collier counties. It has more than 50,000 in South Florida.
In this year’s legislative session, state Sen. Kathleen Passidomo, R-Naples, championed a bill she believed would rein in the claims abuse, but it died.
“It was really a consumer protection bill that would allow consumers to get out of some of those contracts that they unknowingly signed,” she said. “It had some really good provisions that the Office of Insurance Regulation, the insurance industry and consumer advocates all supported. That bill was not heard.”
Passidomo and Sen. Dorothy Hukill, R-Port Orange, are already drafting a bill they plan to file early for next session and they’re “going to pursue this with a vengeance,” she said.
“The rates are going up. The rates at Citizens are very much impacted, and that affects all the rates statewide,” Passidomo said.
The fraud, she said, is spreading to other parts of the state and has reached Southwest Florida.
The Florida Office of Insurance Regulation approved a 6.4 percent overall rate hike for Citizens for 2017. That was on top of a 3.2 percent increase approved for last year.
Fortunately for Southwest Florida, the bulk of those increases will be felt elsewhere in the state, especially in Miami-Dade, Broward and Palm Beach counties.
In Collier County, Citizens’ rates for 206 customers with multi-peril homeowners insurance, the most common type that includes hurricane protection, fell by an average of 3.3 percent this year. In Lee, rates declined slightly, by 0.3 percent, for 553 customers. The drops might have been larger and more widespread if Citizens had been in better shape, Peltier said.
Citizens has 5,018 polices in Collier and 11,607 in Lee.
In 2002, the state Legislature created Citizens to provide insurance to homeowners in high-risk areas and those who couldn’t find coverage in the private market. It was largely an offshoot of an underwriting association the state formed after Hurricane Andrew devastated South Florida in August 1992. It was meant to be an insurer of last resort, but it grew to become the state’s largest insurer.
Citizens has been on an aggressive campaign to reduce its policy count, but it could see a flood of new customers coming its way if private insurers keep raising their rates and refusing to write new policies in some areas, such as Miami-Dade County.
“If there is no other company offering policies in a particular area, then those policies would come directly to us,” Peltier said.
Statewide, 12,276 policies have been “taken out” from Citizens this year, he said. Since 2007, 2.33 million policies have been removed, going to private insurers.
Since 2007 many less-experienced insurers have entered the Florida market, sparking concerns about their ability to handle the deluge of claims they could see from a major hurricane. These younger companies are largely untested, having been spared the worst from Hurricane Matthew last year, when it wobbled east and didn’t make landfall, although it did cause damage on Florida’s east coast.
Every year, the Office of Insurance Regulation puts Florida-based property insurance companies through a “stress test” to see how they will hold up after a disaster by simulating the path of past storms, such as Hurricanes Charley, Frances, Ivan and Jeanne, which pounded Florida in 2004.
“Our review of all insurance companies, big or small, is ongoing throughout the year and consists of a number of analytical tools,” said Amy Bogner, a spokeswoman for the Office of Insurance Regulation. “One such tool is a review of reinsurance programs. Most insurance companies purchase reinsurance to protect against large catastrophic losses. In the several months preceding the beginning of hurricane season, we review the programs in place to mitigate this risk for adequacy.”
Five-year projections based on filed and approved rate changes for 15 large private insurers in Florida shows the average premium for a new $300,000 home in Collier County rising from about $3,305 in 2017 to more than $3,560 in 2022. In Lee, its estimated to go from about $2,859 to more than $3,080.
“Without legislative reform, it may be difficult to avoid large rate increases,” Bogner said. “There are actions that can be taken by policyholders to try to mitigate losses.”
Those actions include:
Ron Lazarto, a partner and client adviser at Gulfshore Insurance in Naples who works in the private risk services division, said when his company’s agents look for a policy to insure a home, they always look for companies that are rated by A.M. Best, the industry’s leading independent evaluator.
When considering smaller insurance companies that don’t quality for the A.M. Best rating, agents turn to Demotech ratings for guidance, he said.
“There are a lot of Demotech-rated carriers. That doesn’t mean they are necessarily a good company. We are selective on the carriers we sign contracts with,” Lazarto said.
He primarily works with affluent customers, and his carriers of choice are AIG, Chubb and Pure, which have survived catastrophic events “without any concern,” he said.
While most insurers have their own insurance to protect themselves against large losses, the Florida Hurricane Catastrophe Fund offers an added layer of coverage to help them pay claims in case of a massive storm.
The fund is in its “strongest financial position ever,” said John Kuczwanski, a spokesman for the Florida State Board of Administration.
The state has $17.6 billion available to the fund, known for short as Cat. That’s more than the maximum liability of $17 billion the fund would face this year in the event of a major storm or storms. The fund, which collects premiums from private insurance companies, has grown largely because Florida saw minimal damage from Hurricane Hermine and avoided a direct blow from Hurricane Matthew last year — and has been spared from any other hurricanes for more than a decade.
By the numbers
Here are the overall rate changes approved for private insurers on multi-peril homeowners policies in 2017:
First Protective Insurance Co. — 4.2 percent
Florida Penninsula Insurance Co. — 8.1 percent and 9.7 percent for its “elite” and “preferred” products
U.S. Coastal Property & Casualty Insurance Co. — .2 percent
Addison Insurance Co. — 9.9 percent
United Fire & Casualty Co. — 9.9 percent
People’s Trust Insurance Co. — 16 percent
Homeowners Choice Property & Casualty Insurance Co. — 8 percent
Omega Insurance Co. — 9.3 percent
Other requests for rate hikes are pending.
Source: Florida Office of Insurance Regulation