Water loss claims, exacerbated by assignment of benefits, are driving higher rates in South Florida and increasingly across the state, according to a just released analysis conducted by Citizens Property Insurance Corp. for state insurance regulators. The insurer says the data confirms that the state is facing a serious issue that needs to be addressed.
“The analysis further indicates that the frequency and severity of claims filed under an assignment of benefit is growing at a disturbing rate,” Citizens said in a statement.
The state-run insurer of last resort conducted its analysis in response to an October mandatory data call from the Florida Office of Insurance Regulation (OIR). The issue has become increasingly controversial since Citizens highlighted the problem in its 2016 rate filing, which called for overall rate increases. The insurer said last summer that water damage claims, particularly in South Florida, were the main reason the insurer needed to increase rates for 2016.
Citizens’ actuaries further analyzed data for both litigated and non-litigated claims, with and without an assignment of benefits, or AOB, under which homeowners sign over control of their claim to water remediation companies, contractors and/or attorneys. Citizens said it reviewed the non-litigated claims, which wasn’t required by OIR’s data call, to “improve the effectiveness” of its response.
According to Citizens, the analysis found that cases in which customers assigned benefits to contractors or remediation companies were almost twice as expensive on average, and more likely to lead to litigation. The average litigated assignment of benefits claim cost for 2014-2015 was $37,677 statewide and $38,544 in the southern portion of the state – more than double that of a non-litigated claim, Citizens said. Claims where benefits weren’t assigned and there was no litigation averaged $8,507 statewide.
The insurer said the data shows that AOB and litigation work both separately and together to drive average claims costs more than four times higher than that of a simple non-assigned, non-litigated claim.
“Consumers are losing control of their claims by transferring their authority to contractors and attorneys under the current assignment of benefit system,” said Chris Gardner, chairman of Citizens Board of Governors. “This analysis shows clearly that AOB is raising water claims losses. Those higher costs are paid by all policyholders. We have a dual obligation of protecting our policyholders while keeping premiums as affordable as possible.”
Citizens said its analysis reaffirms earlier studies showing that water loss claims are the leading cause of higher insurance rates, especially in Palm Beach, Broward and Miami Dade counties. The insurer raised its 2016 rates by an average of 8.1 percent increase for Miami Dade customers.
“Water claims are being filed at double the rate of just two years ago in the Tri-County area and triple the rate of two years ago across the rest of the state,” The Citizens statement said.
The Citizens analysis also looked at the age of the home to evaluate if the claim risk was higher because of the life expectancy of certain types of pipes. Citizens said the study concluded the age of the home was not a significant cost driver for claims.
Citizens expects that the trend of recent claims increasingly being represented by third parties under an assignment of benefits indicates a likely spike in costs going forward. By Florida law, predicted costs must be fully reflected in the rates established for Citizens by OIR.
“The skyrocketing frequency of claims both inside and outside the Tri-County region, coupled with the demonstrated effect of both AOB and litigation as massive cost drivers, is an ominous sign,” said John Rollins, Citizens chief risk officer. “As a result, Citizens customers all over Florida can expect a round of rate hikes in 2017 unless we can work with the Legislature and the Office of Insurance Regulation to achieve reforms and changes that will lower predicted future non-weather claims costs.”
Citizens said it has joined a coalition of consumer, business and agent groups to educate the public and other stakeholders about the need to make changes to state law regarding assignment of benefits.
“The Consumer Protection Coalition will work to educate consumers and lawmakers over the next several weeks as they address potential changes to the AOB process,” Citizens said.
The full analysis can be found on Citizens’ website. OIR said in an e-mail to Insurance Journal Jan. 12 it has received the required water loss claims information from all data call participants and hopes to have a compilation of the aggregated results available soon.