Florida Citizens Property Insurance Claims Committee Hears Third Quarter Results, Updates

 

During a Citizens Property Insurance Corporation (“Citizens”) Claims Committee (“Committee”) meeting yesterday, November 26, 2012, numerous updates were given on claims related to water loss, sinkholes, and storms as reported for the Third Quarter of the fiscal year.

To view the meeting materials, click here.

Citizens’ Senior Director of Claims Operations David Boyle opened the meeting, noting that Citizens’ Claims Operations received 59,878 new First Notice of Loss Claims through September 2012-an increase of 26.9 percent compared with the same time period in 2011.

“We originally projected 74,000 claims in 2012 and our revised forecast is 80,000 claims,” Mr. Boyle said, noting the total was 66,044 for the same period in 2011.  Ninety-three percent of all the claim assignments have been handled by independent adjusters, it was noted.

Summarizing other key areas, Mr. Boyle noted that just over 10,000 in claims were received in 2012 as a result of tropical storms Beryl, Debby and Isaac.  He said sinkhole claim volume continues to decline, representing only 3.8 percent of all claims since December, compared with just over 6 percent in 2011. 

Highlights of the meeting follow:

 

Complaints

The actual ratio of complaints received by Citizens in September 2012 was 0.81 percent.  The top three complaints are: 

• Delays in claims–16.67 percent
• Unsatisfactory settlement offer–28.33 percent
• Denial of claims–25 percent

 

Special Investigations Unit (“SIU”) Referrals

• Total 2012 SIU referrals year-to-date are 878–a 26.5 percent increase over 694 in 2011.
• Total 2012 Florida Division of Insurance Fraud referrals year-to-date are 168–a 35.5 percent increase over 124 in 2011.

Subrogation referrals year-to-date increased 35.2 percent over a year ago, Mr. Boyle noted, adding that subrogation gross recoveries totaled $4.2 million in September 2012, compared with $3.5 million for the same period a year ago.

 

Water Loss Update

On a year-to-date basis for 2012, water loss volume continues to make up the largest percentage of the Cause of Loss, with plumbing leakages topping the list.  Overall water loss volume is consistent with overall volume trends, Mr. Boyle noted.

The breakdown follows:

• Plumbing leakage or breaks: 27.66 percent
• Roof leaks: 16.99 percent
• Backup sewer or drains: 1.84 percent
• Accidental discharge: 1.6 percent
• Sprinkler leakage: 0.07 percent

Plumbing leakage or breaks topped the list of paid indemnity by cause of loss at $83,220,330 year-to-date, followed by roof leaks at $22,409,720.  It was noted, however, that water-related claims continue to decrease, and that public adjuster involvement in water-related claims has also decreased dramatically over the past four years.

To better handle the water loss issues, a “Water Loss Damage Assessment Team” was created, and will be using an automated tool to validate invoices against guidelines to be produced by the Team, Mr. Boyle stated.

A water mitigation fraud awareness campaign also has been initiated and a Water Remediation Vendor Program is part of an ongoing evaluation, he added.

Other underwriting initiatives include revisions to Citizens’ policy language related to long-term repeated seepage or leakage and wind-driven water.  The term “backup” was clarified to exclude septic tanks.  Another initiative requires older roofs to be replaced or demonstrate remaining useful life.

 

Sinkhole Volume Update

Statistics show that September year-to-date sinkhole claims are down 27.7 percent from a year ago.  Reasons given for the decrease are sinkhole endorsements and consistent application of claims and underwriting strategies, noted Lance Malcolm, Citizens’ Vice President of Claims Operations.

After Citizens held its initial “Sinkhole Summits” in March 2012, attention has been focused on engaging a comprehensive sinkhole strategy intended to influence the impact of sinkhole claims across the insurance cycle.

This is being done through the implementation of six project teams, which are focused on claims handling, fraud prevention, litigation, a managed repair program and legislation, Mr. Malcolm said.  Citizens’ sinkhole claims organization is transitioning from a desk-based adjustment model to a field-based adjustment model, he added.

Key developments include:

• Hiring Jeff Lambert as Sinkhole Assistant Director
• Hiring three Sinkhole Managers
• Forming two field teams
• Engaging sinkhole desk adjusters to manage through the current pending inventory

The 2012 year-end sinkhole-related paid indemnity for all accounts is forecast to be $174 million-an approximate 21 percent increase over a year ago. 

The 2012 year-end Paid Allocated Loss Adjustment Expenses (for all accounts) is forecast to be approximately $59.5 million, representing an approximate 20 percent increase over 2011.  The increases were described as expenses incurred in the Neutral Evaluation Process under SB 408 changes, inasmuch as Neutral Evaluators are permitted to engage additional experts in their evaluation.  These expenses are borne 100 percent by insurance carriers, it was explained.  Citizens has received Neutral Evaluation invoices as high as $15,000.

It was further noted that, as of September 2012, Citizens has approximately 5,697 pending sinkhole claims.  Of those, 4,163 are First Notice of Loss claims, down from 4,702 as of mid-May 2012; the remaining 1,534 are litigation sinkhole claims–up from 884 in September 2011.

A substantial increase in claim closures since 2011 was attributed to decreasing cycle time to receive engineering evaluations, as well as decreased incoming volume.

It was also noted that Citizens has received 385 sinkhole claims under the 2012 policy language, which incorporates initiatives from Senate Bill 408. 

Of the 385 claims, 110 have been closed.  

• 68.5 of the claims had no structural damage
• 2.5 percent of the claims had structural damage but no sinkhole activity
• 3.5 percent of the claims had no damage to primary structure
• 17 percent of claims were withdrawn
• 8.5 percent of claims had no Optional Sinkhole Endorsement

To view additional statistics on claims filed under the 2012 policy language, click here.

Mr. Lambert said Citizens has begun tracking ground cover collapse claims and the difference in the cost to adjust those, but currently doesn’t separate out those types of claims.

Committee member Carol Everhart said it would be easier to determine if the measures already taken have helped if such claims were separated out.

Meanwhile, it was reported that the Florida Office of Insurance Regulation has approved Citizens’ 2013 Sinkhole Rate Filings.

 

Sinkhole Litigation Update

Statistics show an 83 percent increase in Citizens’ sinkhole litigation over last year, with 900 new sinkhole lawsuits received through September 30, 2012 compared with 492 a year ago.

Since mid-2010, this increase was driven, in part, due to Citizens’ tendering actual cash value exclusive of stabilization in compliance with Florida’s Sinkhole Statute.

Citizens General Counsel Dan Sumner said the original idea to approach the sinkhole issue on a project basis has changed.  To handle the lawsuits more effectively, it became evident that all legal counsel involved in such cases needed to be in agreement on their strategic approach to sinkhole litigation.  The answer has proved to be in the staging of mock trials that have allowed Citizens to examine its legal theories, defense theories and corporate expertise outside of litigation.

“We really needed to re-think that project-based approach and go to a case-specific preparatory mode.  We need to establish precedent and have consistent legal theories and know what it takes to win,” Mr. Sumner said.  “It’s not about the science, but the story.”

He said that Citizens’ Sinkhole Coordinating Counsel has created a legal action plan for the next 12 to 14 months, but its cost is significantly more than originally expected, Mr. Sumner said.

“In three months we have spent about a third of our three-year budget,” he noted.  However, he pointed out that he expects this strategy to pay “big dividends” over time.

“We are encouraging the defense lawyers to attend each others’ mock trials.  The Coordinating Counsel is playing the exact strategic role we had anticipated:  To look at ways to optimize our results not in one case but in all cases,” Mr. Sumner said.

 

Catastrophe Operations

For the 2012 storm season, a total of $32,292,409 was paid out in 10,725 Citizens claims, reported Citizens’ Assistant Director of Catastrophe Claims Jimmy Johnson.

A breakdown of the storms follows:

Tropical Storm Beryl

• 297 claims
• Indemnity payments totaling $1,275,239

Tropical Storm Debby

• 5,079 claims
• Indemnity payments totaling $16,442,980

Tropical Storm Isaac

• 5,201 claims
• Indemnity payments totaling $14,556,968

Citizens’ President and CEO Barry Gilway said Citizens’ Board of Governors will discuss its 2013 budget during a workshop today, November 27, 2012.

With no further business before the Committee, the meeting was adjourned.

 

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