Florida’s Citizens Property Insurance Approves Clarified Policy Language for Water Losses

 

Responding to skyrocketing water damage claims-related losses–particularly in South Florida–Citizens Property Insurance Corporation’s (“Citizens'”) Board of Governors (“Board”) has approved a slate of policy changes intended to bolster claims oversight, while still serving policyholders who need immediate emergency repairs.

By unanimous vote today, December 9, 2015, in response to a surge of questionable water-related loss claims, the Board agreed to modify Citizens’ policy language by limiting initial payouts for emergency services and clarifying ambiguous phraseology relating to coverages typically affected by water loss claims.  The recommended changes will be forwarded to the Florida Office of Insurance Regulation for approval.

Board members were told that the recommended changes represent first steps toward better controlling costs without jeopardizing customer service following the reported spike in the frequency, severity and litigation of water claims. 

Last year, South Florida-based claims accounted for 72 percent of Citizens’ total water damage-related losses.  Water loss claims now account for more than half of every Citizens premium dollar collected in Miami-Dade County.  Recent data shows that this type of claim activity is also spreading to other regions of the state.

The Board action comes as lawmakers continue discussions to create a framework governing the use of post-loss assignment of benefits to ensure that customers remain in control of their own claims.  Citizens’ contract changes would complement these critical legislative initiatives, it was explained.

“The bottom line is these policy changes and clarifications are necessary first steps to keep premiums as low as possible, while protecting our policyholders who have legitimate claims,” said Barry Gilway, Citizens President, CEO and Executive Director.  “However, they in no way fix the assignment of benefits cost-driver that must be addressed by statute.”

“Without these changes, Citizens would be forced either to take more Draconian measures to curb costs or continue to raise rates,” Mr. Gilway continued. 

One result of ambiguous policy language has been an increase in litigated water claims, it was said.  In 2014, 38.4 percent of water loss claims in South Florida (Palm Beach, Broward and Miami-Dade) were litigated–more than double the frequency of litigated claims originating in that region in 2010.

The Board specifically approved changes to:

• Limit initial payouts for emergency services and temporary repairs prior to a report of loss to Citizens (additional coverage for emergency services would be available subject to Citizens’ approval)
• Exclude coverage of permanent repairs completed prior to a Citizens inspection of the damage
• Require that claims be reported within 72 hours of when policyholder knew (or should have known) that a loss had occurred
• Set a limit for additional coverage to restore uniformity of appearance by matching repairs with adjacent undamaged areas
• Clarify language relating to the replacement of plumbing systems following collapse, blockage or deterioration

“With these changes, Citizens is attempting a surgical approach to protect policyholders and contain costs,” Mr. Gilway said.

In 2014, it was reported that 39.2 percent of policyholders filing water loss claims in Palm Beach, Broward and Miami-Dade counties had hired attorneys or public adjusters before filing an initial claim with Citizens.  Comparably, 4.2 percent of policyholders retained attorneys or public adjusters before reporting claims to Citizens elsewhere from the state.  More than 98 percent of all litigated water claims initiate in the tri-county South Florida region.

Costs of litigated claims are nearly three times higher than non-litigated claims, it was noted.  For example, the average litigated claim cost $27,631 in 2014, compared with $9,028 for non-litigated claims during that same time period.  Those costs must be paid from premiums collected by all policyholders within the territory where the loss occurs.  It was estimated that each policyholder pays an annual surcharge of $145 for Citizens’ litigation costs.

If approved by Florida Office of Insurance Regulation, today’s policy language changes would take effect in mid-2016 for new policies and existing Citizens policyholders when they come up for renewal.

 

 

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