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. 



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