Florida’s Citizens Property Insurance Corp. will wait until December to determine its 2019 insurance rates and whether it will approve a proposed 7.9 percent statewide increase for homeowners policies.
The decision to defer action on the 2019 proposed rates came at Wednesday’s Board of Governors meeting where the board opted to give new water loss policy language changes time to take effect and South Florida policyholders more time to recover from Hurricane Irma, according to a statement from the state insurer of last resort.
Citizens said deferring the decision will allow the company to review initial results of a newly established managed repair program that kicks off Aug. 1, 2018. The program was created to address rising costs linked to water-loss claims, assignment of benefits and increased litigation.
Acknowledging concerns raised by consumer advocates and state leaders, the board voted unanimously to defer action on a proposed 7.9 percent statewide increase for personal lines policyholders – homeowners, condominium unit owners and renters – which would have taken effect on Feb. 1, 2019.
Under the proposed rates, inland homeowners with multiperil policies would see an average increase of 8.3 percent, while homeowners along the coast would see rates climb by an average of 9.5 percent. Commercial lines would increase by an average of 8.9 percent.
The 2019 proposed rates called for increases in homeowners multiperil premiums in 60 of 67 counties (see graphic). Citizens said the statewide rate increases are being fueled largely by increased litigation associated with water damage claims and assignment of benefits abuse. In Southeast Florida, Citizens Chief Actuary Brian Donovan said the litigation rate is around 50 percent, though he said that rate has flattened out after years of increasing, though the reason for that is unclear.
This is the first year many policyholders outside Southeast Florida could see rate increases as AOB and water damage claims abuse appear to be spreading to other parts of the state, Donovan told the board. He said the litigation rate outside of Southeast Florida has increased from the single digits to 15 to 17 percent.
“In the past couple years these policyholders actually have been receiving rate decreases,” he said. “However, due to the increase in litigation, this year the recommendation is to increase the rates in that region.”
Citizens Proposed Rates by County
On Tuesday, Florida Chief Financial Officer Jimmy Patronis sent a letter to board members acknowledging the actuarial need for the 2019 proposed rates but urging board members to defer action in an attempt to cushion Hurricane Irma victims and address nonhurricane related losses without impacting rates for Citizens policyholders.
He said Citizens analysis shows the cause of the rate increase is because AOB reforms have not been complete, “which means rising fraud and litigation drive up costs at Citizens.”
“We must find the solution to the underlying problem and not pass on this cost to policyholders,” he said. “Considering the Office of Insurance Regulation recently approved policy changes for Citizens that would help mitigate water losses, we should allow time to review the impacts of that change. Shifting the burden to the policyholder is not the solution.”
Citizens is required by state law to submit a slate of actuarially sound rates to the Office of Insurance Regulation annually for approval. Rates for 2018 began taking effect May 1, 2018, after being deferred in response to Hurricane Irma, which made landfall in September 2017.
Reinsurance and depopulation efforts over the past several years have reduced Citizens’ policy count from nearly 1.5 million in 2012 to approximately 443,000 as of May 2018, a reduction the insurer says has helped provide it the ability to pay claims following a 1-in-100 year storm and a second 1-in-41 year event without having to levy assessments.
Citizens said it has so far received more than 65,000 personal lines claims from Hurricane Irma. Total losses in personal lines exceeds $875 million. The insurer expects total Irma losses, including those from commercial policyholders, will approach $1.2 billion.
“It is important that we consider the ongoing recovery of Florida residents following Hurricane Irma last year,” said Bette Brown, consumer representative on the Board of Governors. “Irma impacted residents throughout the state, most notably in South Florida and the Florida Keys.”
Managed Repair Program
Beginning Aug. 1, 2018, Citizens will limit payment on nonweather related water losses – a broken pipe, a leaking water heater – to $10,000, including $3,000 for emergency water mitigation services on homeowners multiperil (HO-3) and dwelling policies (DP-3) policies. Citizens said most policyholders will not be affected by this change as the costs for emergency water removal and permanent repairs on a nonweather water loss typically do not exceed $10,000.
Customers who choose to take advantage of Citizens’ Managed Repair Program will not be subject to the $10,000 sublimit. Participants in the Managed Repair program can choose from a group of qualified, local contractors. Citizens said it will work directly with the service provider to monitor performance and ensure all covered repairs are completed to the customer’s satisfaction. Upon completion, the repairs will have a three-year warranty.
Citizens said policy changes accompanying the program aim to ensure that policyholders who do not participate in the Managed Repair Program have at least $7,000 available for permanent repairs after completing emergency water remediation measures, while reducing the potential for AOB-driven litigation.
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