Florida’s Citizens Property Insurance Board Approves Depopulation Changes, Product Revisions; Assesses AOB Litigation Explosion

 

At its meeting today, September 28, 2016, Florida’s Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) approved a series of changes to Citizens’ depopulation program that are intended to simplify the takeout process and further improve customer involvement.

Under the changes, which are scheduled to go into effect in January 2017, Citizens will coordinate administration of the depopulation process to ensure that policyholders are well-informed throughout every step of the process as they determine whether to accept private-market offers of homeowners insurance.

To make sure that policyholders remain informed, Citizens will assume responsibility for all communications during the depopulation process.  Policyholders will be presented with all available coverage options, coverage comparisons and the estimated renewal costs.

The new Policyholder Choice Form to be used for the depopulation process also will explain it and provide information about all insurers interested in assuming the policy.  Policyholders who receive multiple offers will have the option to choose their preferred insurance company, rather than having the selection made for them.

“These proposed changes will enhance policyholders’ experience by providing the information they need to make the best decision for themselves and their families,” said Steve Bitar, Chief of Underwriting and Agency Services.  “I’m delighted to be able to offer these improvements to our existing and future customers.”

Since January 1, 2014, 736,816 policyholders have taken advantage of offers made by private-market insurance companies approved by the Florida Office of Insurance Regulation (“OIR”), it was reported.

Additional changes scheduled will streamline the process for participating companies, while making it is easier for insurance agents to assist their customers, Citizens explained in a news release issued before the Board met in Maitland, Florida this morning, September 28, 2016.

But it was assignment of benefits (“AOB”) that was the focus of today’s Board meeting, after which Citizens issued a second press release explaining that litigation costs continue to sap its ability to control costs, which are being passed on to policyholders forced to pay higher rates.  Substantiating data was presented at the meeting.

Litigation and higher rates are being fueled by costs associated with assignment of benefits, under which policyholders authorize a third party, such as a contractor, to work directly with the insurance company following a loss, Citizens said.

“Citizens is required to charge rates that adequately cover losses without having to expend surplus,” said Board Chairman Chris Gardner.  “Regrettably, litigation and AOB costs, therefore, must be passed on to our policyholders, who without significant reforms may be forced to pay higher rates for years to come.”

Litigation continues to concentrate in South Florida, especially in Miami-Dade County, where 65 percent of lawsuits filed against Citizens originate.  Combined with Broward and Palm Beach Counties, the region has produced 95 percent of lawsuits filed against Citizens during the first seven months of 2016.

Litigation has a particular impact on Citizens, which as the State’s “insurer of last resort” increasingly provides coverage for riskier homes and properties located in South Florida.  Through July, Citizens is the defendant in more than 45 percent of cases filed against all Florida domestic insurers in 2016.

The data presented today also highlighted the link between AOB and litigation.  Nearly 88 percent of AOB cases received by Citizens in 2016 went to litigation, which increased Citizens’ costs by 300 percent.

Water losses are the most likely claims to go to litigation, Citizens’ statistics showed.  For example, in 2015, 34 percent of all water claims led to litigation. The number is significant as the cost of the average litigated water claim in 2015 was $33,918 compared with $5,867 for water claims settled without litigation.

Citizens pointed out that, if it were not for water loss, more than two out of three Citizens’ homeowners’ policyholders would have seen a rate reduction in 2017.  In contrast, Citizens’ 2017 approved rates will provide decreases to only 23,000 out of 142,000 homeowners multi-peril policyholders.

“It’s clear that the ability to settle claims quickly and satisfactorily leads to a major savings for Citizens and its policyholders,” said Jay Adams, Citizens Chief of Claims.  “Whatever we can do to steer claims away from litigation will provide a direct benefit to our policyholders.”

Board members also approved several product changes, actuarial adjustments and underwriting revisions as follows:

 

Adjustments to Citizens’ Water Damage Managed Repair Contractor Network

• Consumer friendly, giving the policyholder the option to participate. 
• Initially applies only to water losses caused by accidental discharge from a plumbing system. Other causes of loss may be added in the future.  Programs may not be appropriate for all water losses. 

Utilizes two separate programs: 

“Emergency Water Removal Services” 

• Offers water extraction and drying services to the insured at the time of loss. 
• Cost of service is funded by Citizens and is not subject to the policy deductible or final coverage decisions. 
• Amount of services is limited to $3,000 or 1 percent of Building coverage, but Citizens may approve additional amounts. 

“Managed Repair Contractor Network Program” 

• Provides a Citizens-approved contractor to inspect, estimate, and complete repairs for covered losses. 
• Payment is made directly to the contractor and the policyholder is responsible for paying the deductible to contractor.

Both programs would be supported by a Citizens adjuster who is assigned to the loss and is responsible for coverage decisions and approval of the estimate to repair. 

• If the policyholder does not participate, original policy provisions apply. 
• Available only for the HO-3 and DP-3 products.  Other lines may be contemplated in the future. 

 

Miscellaneous Product Changes

Florida Insurance Guaranty Association Commercial And Personal Lines Recoupments:

Active recoupments for the 2012 commercial and personal lines Florida Insurance Guaranty Association assessments will expire November 30, 2016 for Commercial Lines and January 9, 2017 for Personal Lines.  Additional collection activity and supporting filings were approved to complete the recoupment of these assessments.  The restart date for recoupment activity is tentatively scheduled for March 2017. 

Underutilized Lines Of Business Retired: 

Currently Citizens offers 21 policy types, including seven different tenant contents policies.  Several policy types are seldom used.  In each case, similar coverage is available in another Citizens policy type.  These products require specific effort to maintain and modify as various product and rate changes are implemented.  The Board approved the retirement of the following products that have limited policy counts, allowing Citizens to eliminate administrative costs:

• Mobile Home Tenant Dwelling – Basic Form 
• Mobile Home Tenant Dwelling – Basic Form
• Mobile Home Dwelling – Basic Form 
• Dwelling Fire Tenant – Basic Form 
• Mobile Home Tenant – Wind-Only

Format And Structure Of Personal Lines Underwriting Manuals Updated:

Over time, specific modifications to portions of Citizens’ Underwriting Manuals have resulted in some inefficiencies in format and structure.  Concern existed that these inefficiencies may be confusing agents and slowing down updates and revisions.   The Board authorized the filing of these Manuals with updated format and structure, with no substantive changes.

 

Changes to 2017 Rates for Individually Rated Risks

Citizens and private insurers in Florida may designate buildings that will be individually rated, subject to the approval of rules by the OIR.  Individually rated buildings (also known as Advisory or A-rated risks) are not subject to the insurer’s filed rates, rating schedules, rating manuals or underwriting rules.  Citizens has designated buildings with a Building Coverage Limit of $10 million or greater as A-rated.  These A-rated buildings are not subject to the 10 percent glide path cap on annual rate increases, nor are the rates for these risks subject to approval by the OIR. 

Individually Rated Statistics 

• As of December 31, 2015, after adjusting for depopulation, there were roughly 80 Multi-peril and 38 Wind-Only Commercial Residential individually rated buildings with combined annual premium of $13.8 million.
• Just under 70 percent of the individually rated buildings are in Citizens’ Coastal Account. 

To view a summary of the rating analysis, click here.

Even though the A-rates are not subject to the glide-path, Citizens’ recommendation was described as following the spirit of the law:  All rate increases are capped above at 10 percent and all rate decreases are capped below at -5 percent.  As a result, the proposed rate change approved by the Board today is less than the indicated rate change.  These changes are expected to impact policies effective February 1, 2017 for both Citizens’ new and renewal business.

Today’s Board approval to change the A-rates will be applied to Commercial Residential Multi-Peril rates for A-rated buildings and to Commercial Residential Wind rates for A-rated buildings. 

The Board also reviewed the OIR rate increase Order issued this month, noting that, although most of the requested rates were approved as filed, in Monroe County, the approved HW-2 rates included a 9.0 percent rate increase. 

The Order did acknowledge that FIRM (Fair Insurance Rates for Monroe), the Board of Commissioners for the County of Monroe, and Holly Raschein, State Representative for the Florida House District 120, each wrote to the OIR seeking a review by the Florida Commission on Hurricane Loss Projection Methodology to explain the divergence of modeling results in Monroe County and requesting a moratorium on any rate increases until the completion of the review. 

In response, the OIR will request the Florida Commission on Hurricane Loss Projection Methodology to perform such a review.  The OIR will then require an additional rate filing by Citizens if the review supports such a filing. 

Also referenced in the Order was the detailed study that Citizens funded to evaluate the higher building code standards in Monroe County and to review the treatment of wind versus flood related losses in the model. 

Once this study is completed, the OIR will require an additional rate filing by Citizens if the study supports such a filing. 

To view the complete materials packet from today’s Board meeting, click here.

To access a video replay of the meeting, click here.

 

Should you have any questions or comments, please contact Colodny Fass.

 

Click here to follow Colodny Fass on Twitter (@ColodnyFassLaw)

 

 

To unsubscribe from this newsletter, please send an e-mail to colodnyfassnews@gmail.com.