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. 



Insurer Citizens expects to get bigger after Irma

After Hurricane Irma stung property insurers for $6.3 billion in claims and counting, Florida’s state-run and second-largest carrier expects to add customers in 2018.

The board of state-run Citizens Property Insurance Corp. met Wednesday in Maitland.

“We’re expecting to go from 442,000 back to 500,000,” Barry Gilway, president of Citizens Property Insurance Corp., told the company’s board about its customer count in a meeting Wednesday.

Citizens has not always been right in its own forecasts, initially failing to predict it would get as small as it has from a high of about 1.5 million customers several years ago.

But as private insurers’ appetite for new business grew during Florida’s 11-year hurricane hiatus ending in 2016, now it is predicted to weaken in Irma’s wake. Many private companies limit their risk exposure, particularly in southeast Florida, for reasons ranging from hurricane risk to assertions that claim costs in the region are abusively inflated by contractors, public adjusters and lawyers.

Citizens customers are free to choose other options in the marketplace where available, but most of its policyholders switch to private insurers through state-administered transfers, such as letters offering to move them to another company. In some cases, such as when private companies offer similar or lower rates compared to Citizens in a state “clearinghouse,” customers do not have a choice to remain with Citizens.

Even at a reduced size, Citizens remains the state’s second largest insurer. Growing to 500,000 customers next year would represent about a 14 percent increase.

The company’s risk exposure, or the value of the properties it covers, is expected to grow from about $112 billion to $120 billion, Gilway said.

Citizens has about 42,000 customers in Palm Beach County.






Citizens insurance customer? There’s a change in your rate change

State regulators approved a 6.6 percent statewide average increase for homeowners covered by state-run Citizens Property Insurance Corp. next year, and tens of thousands of Palm Beach County residents can expect about a 9 percent jump in premiums.

Chris Gardner (left), chairman of the Citizens board, and president Barry Gilway meet with the Post Editorial Board to discuss issues ahead of the Florida Legislative session in February. (Lannis Waters / The Palm Beach Post)

One twist: Because of unusual circumstances associated with Hurricane Irma, the new rates take effect May 1, not in February as originally requested.

The rate order “balances the needs of policyholders facing challenges from Irma” with a “responsibility to maintain a healthy property insurance market,” said Citizens board chairman Chris Gardner.

The average premium for a  single-family home in Palm Beach County would rise to $2,877 from $2,631, Citizens figured in its rate proposal. Costs will vary for individual policies and some customers, mostly outside South Florida, will see decreases.

Overall, regulators on Wednesday approved an increase only slightly lower than the 6.7 percent statewide hike Citizens wanted, which company officials blamed largely on inflated non-storm claims in South Florida such as plumbing leaks.

Citizens, Florida’s second largest property insurer, covers about 450,000 customers, with more than 42,000 in Palm Beach County.

Customers who get wind-only coverage from Citizens could fare a little better, with an approved increase just under 1 percent compared to a company request of 1.7 percent statewide. Such policies were projected to cost about 2.6 percent more in Palm Beach County in the company’s original request.

Rates in Monroe County have been frozen pending further review of storm damage there.

As of December 4, Irma had resulted in more than 850,000 claims against all  companies with insured losses of nearly $6.3 billion. Citizens said it expects to receive about 70,000 claims, including more than 9,000 from Monroe County, with losses expected to pass $1.2 billion.

Nine in 10 insurers seek rate increases in Florida, summit hears

As insurers process claims from Hurricane Irma, they say it’s more urgent than ever to change state laws to curb what they call abuses by some attorneys and contractors handling claims.

Florida Insurance Commissioner David Altmaier addresses the Florida Chamber Insurance Summit Thursday in Orlando.

“The lawyers are getting rich,” said Barry Gilway, CEO of state-run Citizens Property Insurance Corp., told the Florida Chamber Insurance Summit Thursday. That’s driving up consumer rates, he said.

Florida insurance commissioner David Altmaier said about 90 percent of property insurers are seeking premium increases in rate filings, compared to less than half three years ago.

But breaking a years-long legislative stalemate in Tallahassee might require taking a deep breath first,  a state lawmaker said.

“I would like to hit the reset button,” said state Sen. Dorothy Hukill, R-Port Orange. That can mean “assume positive motives” by opponents, she said.

Organizers of the Orlando conference said state Sen. Anitere Flores, R-Miami, was expected to join a panel of lawmakers on the summit’s closing day Friday.

Last spring Flores accused insurers of “smearing” her because her committee did not advance legislation they wanted, including changes to state law governing fees attorneys can collect.

A key point of conflict is “assignment of benefits,” when contractors ask consumers to sign over control of insurance benefits before they clean up, say, water from a plumbing leak. Insurers and others also mentioned car windshield cases Thursday. When attorneys get involved by representing the contractors, costs can soar because many abuse rules such as the state’s “one way” attorney fee statute designed to protect little-guy consumers in fights with big companies, the argument goes.

In contrast, contractors have noted assignment of benefits is commonplace with medical providers, for example. Attorney Lee Jacobson said at a forum in Boca Raton last year that insurers are “crying wolf” in a bid to force rules changes that limit consumer rights and bolster company profits.

Such claims occur every year even without hurricanes, but insurers are closely watching what role AOB may play in the market after Irma. Nearly 800,000 Irma claims have been filed worth more than $5.5 billion, state records show.

Slightly less than half of Irma claims have been closed in Florida and in Palm Beach County. About 40 percent of closed claims statewide, and close to half in the county, have been resolved without payment, records show. That can reflect rising hurricane deductibles up to 10 percent of a home’s value — meaning claims did not exceed the amount the consumer pays before insurance kicks in — or other outcomes including claim denials.


NEW: Hurricane Irma generates more than 335,000 claims in first week

Hurricane Irma has produced more than 335,000 insurance claims in a week, according to figures state regulators released Monday.

That includes more than 10,000 in Palm Beach County.

Estimated insured losses statewide so far are just under $2 billion.

The numbers will grow. Some residents are only now returning to their homes, and homeowners with damage from Irma have an additional 90 days to submit information on claims under emergency orders from state officials.

State officials emphasize this data is preliminary.

State-run Citizens Property Insurance Corp. expects about 125,000 claims from its customers. It has the second-highest number of policies statewide, about 450,000.


After Irma: Insurer Citizens expects 125,000 claims

State-run Citizens Property Insurance Corp. has received nearly 16,000 claims by Thursday morning and expects perhaps 125,000 from Hurricane Irma, a spokesman said.

Citizens president Barry Gilway defended a proposed rate hike in a hearing in North Miami in August.

That’s around one in four customers of the state’s No. 2 insurer. The company could announce as early as Friday mobile operations centers in South Florida to help people process claims.

Most claims so far are coming from Monroe, Miami-Dade and Broward counties as well as southwest Florida, officials said.

State officials did not immediately have a statewide number for claims filed.

Insurance Commissioner David Altmaier said in advance of the storm, “Consumer protection is our number one priority as Hurricane Irma bears down on Florida. The Office is dedicated to constantly monitoring the financial health of insurers, and in the coming days, we will be available around the clock to address any insurer issues.”




After Hurricane Irma: How emergency insurance order affects you

An emergency order from Florida’s insurance commissioner issued Wednesday evening gives consumers special protections after Hurricane Irma, including 90 additional days to file claims and a temporary freeze on rate hikes and cancellations.

“At the direction of Gov. Scott, Insurance Commissioner David Altmaier issued an emergency order suspending and activating certain insurance rules and statutes for the health, safety, and welfare of Florida’s policyholders,” a statement from regulators said.

“Among other provisions, the order provides an additional 90 days to policyholders to supply information to their insurance company; prohibits insurance companies from canceling or non-renewing policies covering residential properties damaged by the hurricane for at least 90 days; and freezes any and all efforts to increase rates on policyholders for 90 days,” the statement said.

Among other things, the order says notices of cancellation issued or mailed after Aug. 25 shall with be withdrawn and reissued on or after Oct. 15.

Gov. Scott initiated the process Tuesday with an executive order directing the insurance commissioner to take action.

“As Hurricane Irma leaves our state, it is critical that Floridians have every resource available to quickly recover,”  Scott said then.  “By providing additional protections for consumers, we are making sure that each family has ample opportunity to get their claims filed in a timely manner.”

Earlier in the day Wednesday, the Florida Property & Casualty Association, representing a number of state-based companies, said it was awaiting details of the final order, which “will provide our members with the specificity they need to properly implement the Governor’s directive. ”

The group said it is committed to working with state officials to make consumers aware of “pitfalls” associated with contractors who ask homeowners to sign over control of insurance benefits, which industry officials can lead to abuses and inflated claims.

The Consumer Federation of America warned against using unlicensed or “fly by night” contractors, but also reminded consumers they can seek other professional opinions and quotes if they are not confident adjusters and contractors arranged by the insurance company are offering full and fair payment.

“Not all insurance companies handle claims badly, so go into the claims process with an open mind,” said J. Robert Hunter, CFA’s Director of Insurance and former Administrator of the National Flood Insurance Program and Texas Insurance Commissioner. “Be vigilant, though, and be ready to stand up for yourself and your family, or you run the real risk of being shortchanged.”


NEW: Sawgrass Mutual signs consent order, new home sought for customers

Within days of the 25th anniversary of Hurricane Andrew, a South Florida insurer with more than 20,000 customers appears headed out of business and the search is on for another firm to take its policies, records obtained Tuesday evening by The Palm Beach Post show.

Sawgrass Mutual Insurance Co. of Sunrise told state regulators an initial “plan for the orderly wind-down of the company’s operations” is “no longer feasible” and it agreed to consider other plans for the “orderly transition” of its business, records show.

Documents signed Tuesday by Sawgrass CEO Daniel O’Neal show the company agreed that an amended consent order with Florida’s Office of Insurance Regulation should be made public.

Under an order of administrative supervision, regulators are “working with Sawgrass Mutual Insurance Co. and interested parties to develop a wind-down plan for the company, which includes the orderly transition of policies from Sawgrass to another insurer,” OIR spokeswoman Amy Bogner said. “Coverage for current Sawgrass policyholders remains in force until a plan is implemented.”

Consumers can explore options for finding other coverage at www.floir.com, officials said.

An agreement Aug. 18 for the “wind-down” was treated as confidential under state laws, records show.

Tuesday’s document states the parties agree “it is in the best interest of its policyholders and the public to make this Consent Order public.”

A big warning sign appeared Monday when ratings firm Demotech said it was changing the insurer’s rating from A to L, meaning licensed by state officials but not qualifying for a higher grade from Demotech.

Demotech said the company’s “surplus and other financial metrics” no longer supported its previous rating. Attempts to reach company officials for comment were not successful.

Founded in 2009 and based in Sunrise, Sawgrass had just over 20,000 Florida customers as of March 31, including more than 650 in Palm Beach County, state records show.

It’s the latest sign of turbulence in a market where many national insurers have pulled back and smaller, untested companies have stepped in.

On the eve of hurricane season in May, Mount Beacon Insurance Co. went out of business and about 22,000 of its policies were transferred to Florida Specialty Insurance Co.



NEW: South Florida home insurer hit with ratings downgrade

With the heart of hurricane season looming, a South Florida home insurer that recently had more than 20,000 customers faces a ratings downgrade from Demotech Inc.

Formerly A-rated, Sawgrass Mutual Insurance Co. of Sunrise is now listed as “licensed,” meaning only that it is licensed by state officials but does not qualify for higher ratings from Demotech.

It’s another troubling sign in a state with the nation’s highest insurance premiums, where many national insurers have pulled back and smaller, untested companies have stepped in.

On the eve of hurricane season in May, Mount Beacon Insurance Co. went out of business and about 22,000 of its policies were transferred to Florida Specialty Insurance Co.

The action with Sawgrass was necessary despite a number of “potential transactions” under negotiation that involve the firm, a Demotech statement said.

Demotech president Joseph L. Petrelli said in a statement, “The Company filed its initial year-end 2016 financial statement, reporting surplus in excess of $20 million, in a timely manner.  The Company secured an effective reinsurance program prior to storm season.  The focus of the Company was to identify suitors and negotiate a transaction that was favorable to their policyholders rather than write additional new business.”

Attempts to reach insurance company officials for comment late Monday were not successful.

The deadline for an independent audit passed without Demotech receiving a copy, the ratings firm said.

“The second quarter 2017 financial statement, presented to us on August 16, 2017, and a revised year-end 2016 financial statement, present surplus and other financial metrics at levels that no longer support” its previous rating, Demotech said. “Concurrently, management has not communicated the most recent status of negotiations by the Company.”


Fed up with Citizens rate hikes? Email or attend Aug. 23 hearing

Not happy with rate increases at state-run insurer Citizens? Now is the time to tell regulators.

Chris Gardner (left), chairman of the Citizens board, and president Barry Gilway meet with the Post Editorial Board to discuss issues ahead of the Florida Legislative session in February. (Lannis Waters / The Palm Beach Post)

Send an email or attend a hearing in person next week in South Florida if you want to comment on Citizens Property Insurance Corp.’s plan to raise standard homeowner premiums 6.7 percent statewide in 2018 and 9.3 percent in Palm Beach County.

The hearing is set for Wednesday, Aug. 23 at 4 p.m. at Florida International University in North Miami, at the Kovens Conference Center, Bayview Ballroom South, Room 214A.

The general public is welcome to submit comments until 5 p.m. Aug. 31  until by sending an email to: ratehearings@floir.com with “Citizens” in the subject line.

Palm Beach County was largely spared severe damage from 2016 hurricanes, but that’s not the main driver of rate increases, according to Citizens.

Citizens wants not only to raise rates but also change the way it handles water-damage claims — not necessarily related to storms but issues like a plumbing leak. It would cap benefits for such claims at $10,000 unless consumers use contractors Citizens chooses in a managed-repair plan.

That requires a consumer ankle-deep in water to know repairs will conveniently cost less than $10,000 before making a choice, contractors have argued.

“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 in June. “There is a reason they cannot push their efforts through the legislature these last six to seven years. The people and the legislators can see the carriers are trying to control everything for their best interests and profit margins.”

Citizens officials say water claims are grossly inflated by some contractors and attorneys and they must act.

“It’s ironic that our rates for wind coverage are coming down, but Citizens policyholders in South Florida still must brace themselves for continued rate increases,” board chairman Chris Gardner said in June. “We don’t want to raise premiums, but Citizens is obligated by statute to set actuarially sound rates.”

The average premium for an H03 policy, covering a single-family home, would rise to $2,877 from $2,631 in Palm Beach County under the company’s proposal. Floridians already pay the nation’s highest average property insurance premiums.

Premiums for similar policies would rise 2.2 percent in Martin, 8.9 percent in St. Lucie and more than 10 percent in Broward and Miami-Dade counties, the maximum allowed in a single year for Citizens under a state rate cap.

Company documents said, “The peril of water continues to be the primary driver of Citizens’ increased rate need. In particular, litigated water claims in South East Florida (Miami-Dade, Broward, and Palm Beach counties) are driving the water indication.”

Still, records requested by the Post show Palm Beach County accounts for only 5.1 percent of the lawsuits against Citizens statewide associated with “assignment of benefits” — when a consumer signs over control of insurance benefits to a contractor.

Yet Palm Beach County has almost 10 percent of the company’s overall customers. Citizens had 448,802 customers statewide as of March 31, with 41,975 in Palm Beach County. So Palm Beach County has a lower than average share of AOB lawsuits compared to its total customer base.

Citizens officials insist the rate request for Palm Beach County is still justified. They note  31.3 percent of the county’s claims in 2016 used assignment of benefits, up from 8.5 percent in 2014,  though this did not mean they had lawsuits associated with them. It can take about a year after a claim is reported to enter litigation, if a lawsuit is going to happen, a company spokesman said.

But arguments about what might happen based on “trends” in water claims, as opposed to actual losses, have not always withstood careful investigation.

Regulators questioned a proposed 8.1 percent blanket increase that was subsequently withdrawn a year ago for Palm Beach, Broward and Miami-Dade counties by the state’s largest insurer, Fort Lauderdale-based Universal Property & Casualty Insurance Co. Universal consultant Kenneth L. Leonard Jr. said “increasing trends in the Tri-County region” create “additional uncertainty” not “captured through techniques traditionally followed to develop individual territory indications.”

State officials questioned why a special three-county rate increase based on such vague justification was not “unfairly discriminatory.”

Citizens officials said their proposal does not unfairly lump in Palm Beach County with its neighbors to the south.

“The recommended rate changes for Palm Beach is not a result of being ‘grouped’ with Broward and Miami-Dade,” a company statement  said. “The recommended rate changes for Palm Beach are due to the fact that Palm Beach is experiencing similar loss trends as Broward and Miami-Dade.”

Still, there’s little question where most of the losses are actually occurring.  In 2016 losses associated with AOB lawsuits, Miami-Dade Co. accounted for $70.7 million and Broward $26.4 million while Palm Beach’s total was $4.8 million, Citizens records requested by the Post show.

Miami Dade Co. has 31.6 percent of the company’s total exposure (the potential cost to cover all properties) but 64.1 percent of the AOB lawsuits. Broward has 14.6 percent of the exposure and 26.5 percent of the AOB suits.

Unlike them, Palm Beach Co. has a lower share of Citizens’ AOB suits (5.1 percent) than its share of the company’s total exposure (7.2 percent).

Citizens officials acknowledged Miami-Dade and Broward counties “are in a class by themselves” and that Palm Beach County shows a “much better result.”

But they maintain Palm Beach County is still “worse” than the rest of the state outside the tri-county region, which collectively accounts for 4.3 percent of  AOB lawsuits compared to Palm Beach County’s 5.1 percent.

Source: Citizens Property Insurance Corp. response to request from The Palm Beach Post.

If Citizens officials believe rate hikes in Palm Beach County are  justified for reasons other than water claims, that’s different from the clear message in the company’s public statements about this rate request.

Want regulators at the Florida Office of Insurance Regulation to give this request close scrutiny? Now is the time to speak out.

For more information, visit the Citizens rate hearing web page.