Why ‘unintended consequences’ spur today’s Citizens insurance change

When it comes to the costliest claims not caused by hurricanes, Florida’s second largest home insurer acknowledged “unintended consequences” behind a change approved by the board of state-run Citizens Property Insurance Corp. Wednesday.

Chris Gardner (left), chairman of the Citizens board, and president Barry Gilway meet with the Post Editorial Board to discuss issues last year, (Lannis Waters / The Palm Beach Post)

The revision to the language in Citizens policies comes after the company launched its “managed repair” program last year to give consumers incentives to use company-approved contractors for certain repairs. Citizens maintains these claims are often inflated in a way that drives up costs for everybody

The program, criticized by contractors outside the company’s program as well as attorneys who sue insurers, aims to limit payment on non-weather-related water losses to $10,000 if homeowners are not using company-approved contractors.* Such claims often involve, say, a broken pipe or a leaking water heater.

It also established a $3,000 limit on water mitigation services, meaning initial clean-up, unless Citizens approves more. But company officials concluded that, whoops, that opened the door to the kind of lawsuits it says are driving up rates.

“The flexible provision has had the unintended consequence of increasing the potential for litigation,” a Citizens statement said. “Under the new language, additional water mitigation exceeding the $3,000 limit would be completed by Citizens managed repair contractors at no cost to the policyholder.”

Meeting Wednesday, Citizens officials portrayed the change as a fair way to address the problem.

“We believe this is the most customer-centric approach to address the abuse and anticipated rate increases tied to non-weather water claim abuse,” said Steve Bitar, Citizens chief of consumer and agent services. “Again, our overriding goal is to ensure that every Citizens customer has choices and access to full coverage.”

The new policy language is set to take effect Aug.  1.

Contractors not in the company’s managed-repair program have argued it artificially restricts consumer choices and can lead to inadequate or unfair insurance payments. Sometimes damage from real-life claims does not conveniently stop at a company-imposed limit, they said.

“This is a huge problem and is more of the continued effort to have Citizens and the other carriers control the whole restoration process and not allow the free market and the policyholder to make choices,” David J DeBlander, president of Pro Clean Restoration and Cleaning in Pensacola, told The Palm Beach Post last year.

Update: Florida Association of Public Insurance Adjusters president Jimmy Farach said Wednesday the program still works against consumer interests.

“Citizens (is) taking away their policyholder’s rights to receive full compensation unless they agree to let the Insurance company’s pet contractors do the job,” Farach said in a statement. “This will take away any ability for checks and balances.  Instead of having a contractor that will perform a full and fair repair, Citizens will hire contractors that will do the cheapest repairs possible, without regard to the quality of the repair.  If the contractors hired by Citizens don’t make the repairs cheaply, Citizens won’t continue to hire them. This is really bad for Citizens policyholders.”

* An earlier version of the blog has been revised to reflect when the $10,000 limit would take effect. A Citizens spokesman notes while the managed repair program and $3,000 flexible cap has been in place since last year, “the $10,000 cap on non-weather water claims has yet to kick in.” The company expects that provision to go into effect Aug. 1, 2018  if state regulators approve. 

 

 

Florida insurer Mt. Beacon closes its doors, policies taken over

A start-up player in Florida’s home insurance market, Mount Beacon Insurance Co., is going out of business and about 22,000 of its policies have been transferred to Florida Specialty Insurance Co., the latter firm’s CEO said Monday.

Call it a sign of the challenges facing consumers in Florida, where many big national insurers have largely stopped writing new business and a host of new and smaller competitors have stepped into the fray.

The Palm Beach Post reported trouble finding Mount Beacon’s headquarters less than a year after its 2014 founding. It drew attention for making offers to take customers of state-run Citizens Property Insurance Corp. who lived in mobile homes — an unconventional target for such offers. At the time, there was no company sign at the company’s official Pinellas Park address in state corporate records and an employee at the front desk had never heard of the CEO.

By the start of 2015, Mount Beach had 31,871 customers, including 1,624 in Palm Beach County. The most recent statewide customer count available to The Palm Beach Post’s insurance guide was about 37,000.

Now the policies are in good hands, the new stewards say.

“Agency and policyholder information can now be found on the Florida Specialty Insurance Company website, www.floridaspecialty.com,” said Susan J. Patschak, chief executive officer of Florida Specialty Insurance Co. in Sarasota. “Customer service, underwriting, billing and claim service numbers have not changed and can be found on the Florida Specialty website as well.”

After the additional policies, Florida Specialty has about 50,000 customers in Florida, she said.

The manufactured home business that Mount Beacon took out of Citizens was profitable before reinsurance costs, referring to back-up coverage insurance companies buy to make sure they can cover claims after a disaster, Patschak said.  It was these costs that made this profitable underlying business unprofitable, she said.

As of May 15, 2017, Mount Beacon Insurance Co. no longer had any active policies and its remaining assets will be merged into a firm based out of state, Oakwood Insurance Co., officials said.

Florida Specialty Insurance Co. said it received notification from ratings firm Demotech Inc. on March 10 affirming Florida Specialty’s Financial Stability Rating of “A (Exceptional).” Demotech plays an important role in helping determine acceptability in the mortgage lending marketplace for smaller companies not necessarily rated by other ratings firms.

The Palm Beach Post reported in March that Mount Beacon was among several Florida insurers that merged, changed ownership, shifted customers to new hands or added new investment after threatened ratings downgrades from Demotech. The return of hurricanes to Florida in 2016 after an 11-year pause and trends in non-catastrophe claims placed financial pressure on many of the state’s fledgling companies, Demotech said.

From a Demotech release in March:

Mount Beacon Insurance Company / Florida Specialty

“Although the Company met or exceeded the level of capital and surplus required under the statutes of the State of Florida and management has committed to do so into the future, the Company did not report financials acceptable to Demotech.  The investors controlling the Company opted to sell the Company rather than recommit to Florida or adapt its business model to the emerging operating environment.  Mount Beacon Insurance Company has been acquired by Florida Specialty Acquisition, LLC.  Mount Beacon will maintain the FSR previously assigned while the remainder of its policies are moved to Florida Specialty Insurance Company by May 15, 2017.”

 

 

Fair? Or outrageous? Bad credit can add 26% cost to cover Fla. home

Whether you know it or not, having your credit score go from excellent to poor can cost you 26 percent more to insure your Florida home, a new study shows.

And that’s actually one of the smallest jumps in the country in percentage terms. A possible reason why: Florida’s average home premiums already lead the U.S.

Florida is the only state with an average premium above $2,000 in the latest numbers available from the National Association of Insurance Commissioners, so a 26 percent jump can easily mean more than $500 a year. But that’s big money compared to the average U.S. home insurance premium of about $1,132, according to a report released in January.

Poor credit can nearly triple home insurance cost in South Dakota, 288.1 percent, according to research commissioned by insuranceQuotes.com.

This is a controversial area that many consumers don’t realize affects them at all. California, Maryland and Massachusetts ban the use of credit in setting home insurance rates, according to study researchers. In other states including Florida, you will probably never see anything in your bill that says you are being charged more because a credit report suggests you have had trouble paying bills.

There’s no single credit score or report that all insurers use. Different companies may calculate their own or base them on data from third-party vendors.

So what’s the justification? The report quotes industry experts about this.

“Credit-based insurance scores are used by almost every insurance company in the nation because it’s a very good segmentation tool,” said Lamont Boyd, insurance underwriting expert at Fair Isaac Corp. or FICO, which produces a well-known credit score. “It’s such a powerful tool because it is very, very predictive of future losses. In other words, lower scoring individuals typically have more insurance losses than those in the higher ranges, which means they are more expensive to insure.”

If you are fortunate enough to stay out of serious debt and have the income to pay bills promptly, you may benefit from this system as a consumer.

But if you are someone who has struggled with, say, a job loss or a bankruptcy related to medical bills, you may think this is utterly outrageous. It can seem like kicking people when they’re down, and they don’t even know it. A consumer can be charged more for reasons having nothing to do with actual claims she filed or the general risks her home faces from hurricanes or other hazards.

The debate also extends to car insurance. The Palm Beach Post reported last year a national consumer group said credit information that in effect pegs you as poor can be more expensive for your car insurance bill than driving while drunk, and it called out Progressive and Geico in particular.

“It is profoundly unfair that a driver with a moderate income and a perfect driving record is often charged more for auto insurance than higher-income drivers with DUIs, accidents and speeding tickets,” said J. Robert Hunter, the Consumer Federation of America’s director of insurance and former Texas Insurance Commissioner. “As long as state governments require drivers to buy insurance, they should require insurance companies to price their product based on how we drive, not who we are.”

Companies referred questions to insurance industry groups.

“Insurance companies don’t look at your income,” said James Lynch, chief actuary for the industry-funded Insurance Information Institute. “They don’t care about your income. They care about how much risk you present, and that is what they base their price on.”

When credit drops from excellent to poor, these states see the greatest home insurance premium increases, a study by Quadrant Information Services found:

1. South Dakota — 288.1%
2. Arizona — 268.6%
3. Oklahoma — 248%
4. Nevada — 235.3%
5. Oregon — 234.9%

These states show the smallest increase (excluding the three states where using credit in setting home insurance rates is prohibited):
1. North Carolina — 0.2%
2. Florida— 25.7%
3. New York — 29.3%
4. Wyoming — 43.9%
5.  Hawaii — 53.1%

Source: Quadrant Information Services 2017 study, commissioned by insuranceQuotes

Here is what the report says about methodology: “insuranceQuotes commissioned Quadrant Information Services to calculate home insurance rates using data from six major carriers with approximately 60 percent market share in each state. The averages are based on a 45-year-old who owns an 1,800 square foot, 2-story, single family home, built in 1976, with $140,000 dwelling coverage, $300,000 liability coverage and a $500 deductible. The three tiers of credit-based insurance scores analyzed were excellent, fair and poor.”