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Citizens CEO: Rate hike due to spike in Miami-Dade water-damage claims

Barry Gilway, foreground, CEO of Citizens Property Insurance Corp, listend to a speaker at a public hearing about rate increases, at the Miami Dade College Wolfson Campus in September 2012.
Barry Gilway, foreground, CEO of Citizens Property Insurance Corp, listend to a speaker at a public hearing about rate increases, at the Miami Dade College Wolfson Campus in September 2012. MIAMI HERALD STAFF

A “disturbing” rise in water-damage claims in South Florida is driving Citizens Property Insurance Corp. to seek an average 3.2 percent increase in rates for many homeowners, the president of the state-backed insurer said Tuesday.

Without the surge in reported residential water damage over the past two years, which is causing the agency to alter its approach to such claims, Citizens would be asking for an average statewide rate decrease, Citizens President and CEO Barry Gilway said during a rate hearing before the Office of Insurance Regulation.

“You can’t move away from the fundamental issue, when you take a look at Miami-Dade, and you take a look at the rest of the state, there really is no major differences in ages of home or any other characteristics,” Gilway told Insurance Commissioner Kevin McCarty. “So it leads you to the obvious conclusion, and the conclusion basically is there is more fraud associated with these types of claims.”

As it is, Citizens customers in Miami-Dade, Broward, Palm Beach and Monroe counties, which comprise a large portion of Citizens’ portfolio, are more likely to see rates increases than homeowners in other parts of the state under the rate proposals. And the reason is the water claims, Gilway said.

“If the Miami-Dade average [water damage] claim were the same as the rest of the state, 99 percent of all Miami-Dade policyholders would be getting an 8 to 9 percent decrease, not an 8 to 9 percent increase,” he said.

McCarty gave no hint if his office would approve the proposed rates.

The new rates, if approved by the state regulators by the second week of September, would go into effect Feb. 1.

The rates vary by county and depend on a property’s location, the home’s style, and the type of policy.

The overall statewide average increase would be 3.2 percent, with homeowners’ multi-peril personal-line accounts going up an average of 1.3 percent and wind-only coastal accounts going up 9 percent. Multi-peril coverage for mobile-home owners would go down 5.3 percent on average. There is no proposed change to sinkhole rates.

The increase in claims, primarily in Miami-Dade County, is driven by attorneys who specialize in water damage, which adds to attorney fees and adjuster costs, Gilway said.

“The issue for us is, we don’t even have a chance to work with a policyholder to come up with a fair settlement,” Gilway said after the hearing. “You saw the numbers, 30 percent of all the water damage claims come in with representation. We have not even talked to the insured. And 90 percent of all the claims coming in with representation come from Miami-Dade.”

In 2012, about one in 12 homeowners in Miami-Dade County with a Citizens policy made a water-damage claim, with the average cost just under $9,000. In the past 12 months, Gilway said, one in eight Miami-Dade policyholders with Citizens filed such a claim, with damage costs running on average approaching $15,000.

“We’re averaging 1,000 water-damage claims a month,” said Gilway, who described the increase as “disturbing.”

John Rollins, Citizens chief risk officer, said a majority of the claims come from reports of pipe failure. Citizens doesn’t cover flood and storm surge.

One change being made is that only Citizens adjusters, who are being trained specifically on water claims, will respond to those claims in South Florida, Gilway said.

Gilway said he doesn’t anticipate the need to get the Legislature to enact new laws to address the increase in water-damage claims. But he said he’s working with Rep. Frank Artiles, a Republican from Miami who has been a critic of the agency, on rules for making water-damage claims with the state-backed agency.

The proposal would establish “mandatory” appraisal rules — similar to sinkhole claims — in which both sides on a water-damage claim would get to select an appraiser and if the two sides don’t agree, the issue would go before a mediator. The move would keep attorneys out of the issue, Gilway said.

The rate proposals come as Citizens has dropped from 1.5 million policies in 2012 to 589,456 policies as of July 31. Gilway said he expects the number of policies to be just above 500,000 by the end of the year.

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