Florida’s Citizens Says AOB Abuse to Blame for Statewide Rate Increase of 6.8%

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Citizens Board of Governors has approved recommended rates for 2017 that equal an average rate increase of nearly 7 percent statewide. The company said the increase is a necessary response to rising non-weather water losses and assignment of benefit (AOB) abuse that is now affecting all regions of the state.

By unanimous vote, board members recommended the 6.8 percent statewide increases for personal lines policyholders, reversing a recent trend of lower rates for all but South Florida customers. Citizens said in a statement that the increase reflects the negative effects the company is experiencing from water losses, AOB abuse and increased litigation that has begun to spread across the state. Citizens’ rate package now goes to the Florida Office of Insurance Regulation (OIR) for approval.

Under the proposed rates, inland homeowners with multiperil policies would see an average increase of 6.3 percent, while homeowners along the coast would see rates climb by an average of 8.6 percent. Rates for condominium unit owners would rise by a statewide average of 7.1 percent.

Multiperil HO3 policyholders in the tri-county area of Miami-Dade, Broward and Palm Beach counties, where water claims and AOB litigation have been the most rampant, will see rate increases of 9.1 percent, 8.9 percent and 9 percent, respectively. Statutorily, Citizens can only raise rates by up to 10 percent per year but has said that actuarially sound rate increases for this region should be as high as 189 percent.

Only 14 of the 67 Florida counties will see overall rate reductions, with Polk County seeing the largest decrease of 9.1 percent. Statewide, 108,126 of Citizens 464,725 policyholders will get a decrease in rates. Citizens executives said back in April they had hoped to decrease rates in some parts of the state by about 10 percent but the AOB abuse problem made that impossible. The number of policyholders eligible for decreases is also significantly less than 2016, when nearly half of Citizens’ personal lines policyholders saw lower rates.

“Without significant reform, Citizens policyholders must brace themselves for continued rate hikes as water losses and increased costs surrounding assignment of benefits eat into surplus and force Citizens to repeatedly raise rates to fulfill its statutory obligations to set actuarially sound rates under the glide path,” the company said in a statement.

Citizens said Wednesday the 2017 proposed rates would have actually been higher had OIR not recently approved a set of Citizens policy contract changes regarding emergency services and notification requirements before permanent repairs can begin. The changes take effect on all new and existing policies on July 1. Many private insurance companies say they are also experiencing a rise in water claims with AOB and have filed similar requests with OIR.

“Every year, our actuaries use recognized standards to formulate the rate recommendations presented to this board,” said Chris Gardner, Citizens Chairman. “We don’t want to raise rates, but we must respond to the actuarial data. Unfortunately, our policyholders are being required to pay higher rates because of inflated claims, increased litigation and abuse. We can’t keep asking them to do that.”

Citizens’ analyses show water losses have increased in both severity and frequency. The company said earlier this year that water loss claims have risen 46 percent in a 5-year period. Claims filed with Citizens under an assignment of benefits are more expensive and far more likely to lead to litigation, which in turn increases the cost of the claim. Citizens said under current conditions, rates in Miami-Dade County would need to nearly triple to adequately pay claims. Statewide, personal lines rates would have to rise an average of 65 percent.

Citizens has found that South Florida policyholders are far more likely to assign benefits to a third party –a contractor, water mitigation company or public adjuster – before submitting their claim. Nearly one in four South Florida policyholders assign their benefits to a third party.

The AOB issue is complex and not unique to Citizens, said Barry Gilway, Citizens president, CEO and executive director.

“The causes for these increases include the AOB document itself, referral fees & other inducements, unchecked solicitation for mitigation business, lack of licensing and regulation and a general lack of knowledge on the part of customers of the risks involved with an AOB,” Gilway said. “The bottom line is that this is a crisis, not just for Citizens, but the entire Florida property market.”

Industry groups said they were not surprised by the Citizens rate filing and agree that something needs to be done at a statewide level or Florida homeowners will continue to pay. Lawmakers failed to enact legislation in the 2016 session for the fourth year in a row.

“We have been warning about premium increases resulting from AOB abuse for four years and, now, because of lawmakers’ inaction, consumers are paying the price,” said Michael Carlson, president of the Personal Insurance Federation of Florida, and a member of the Consumer Protection Coalition, formed this year to fight AOB abuse. “These rate increases recommended by Citizens prove without a doubt the problem is real and getting worse. We haven’t been crying wolf.”

“I think Citizens did the best they can under the circumstances without any help from the Legislature,” said Jeff Grady, executive director of the Florida Association of Insurance Agents. “Most people don’t realize how significant the AOB issue is because, except insurance companies, most people haven’t felt the pain. For the most part it’s only gone one way and now it’s starting to go the other way…until that happens people don’t get the message that this is costing everyone.”

Logan McFaddin, regional manager for the Property Casualty Insurers Association of America (PCI) said the major influx of AOB claims and lawsuits are putting pressure on Florida’s insurance system, and that Citizens is taking the right steps to protect their policyholders should a large hurricane make landfall in 2016.

“The last thing Floridians need is another unnecessary cost-driver increasing their rates as a result of abuse in our current system,” McFaddin said. “AOB reforms are needed to protect Floridians from dishonest companies and individuals looking to take advantage of people in a desperate situation.”

The rate recommendations will be submitted to OIR, which will make its decision on if the rates can take effect after holding a public hearing later this summer. If approved, the new rates will go into effect after January 1.

Additional information and answers to common questions about Citizens’ rates and premiums are included on the Citizens website under its “2017 Rates Frequently Asked Questions”.