The state-backed Citizens Property Insurance wants to change policy language in an attempt to stem the growth of water-damage claims the agency says are starting to spill out of South Florida.
The Citizens Board of Governors on Wednesday unanimously agreed to move forward with the changes involving how water-damage claims are handled.
“Without these changes, Citizens would be forced either to take more draconian measures to curb costs or continue to raise rates,” Citizens President and CEO Barry Gilway said.
Among the proposed changes: Customers would have to report non-hurricane water damage within 72 hours; there would be a limit of between $2,500 and $5,000 on the initial payout for emergency services; and coverage would be limited to replacing just the area of the damage, such as the area around a pipe that caused a leak.
Citizens Chief Risk Officer John Rollins said the insurer is finding that often water-loss claims are being used to entirely replace plumbing systems.
“The water-loss policy changes . . . attempt to put our policy in the best position to not be abused with regard to triggering coverage on tenuous grounds and expanding that coverage to cover things that were never intended by the homeowner’s insurance policy,” Rollins said. “We’re taking this approach to best protect our customers and to use a scalpel . . . to address this problem without resorting to blanket restrictions on coverage.”
The changes will require approval by the state Office of Insurance Regulation.
The proposal has the backing of the Florida Chamber of Commerce and the Personal Insurance Federation of Florida, which have made a priority of addressing claim and litigation abuse. However, critics contend Citizens is presenting an incomplete picture to keep its claims costs down.
Gary Farmer, an attorney and state Senate candidate from Broward County, said South Florida and Tampa underwent huge construction booms in the 1960s and 1970s and plumbing systems are coming to the end of their expected life cycles.
“It’s natural you’re going to have, this long after so many homes have been built, a natural degradation and wearing out of the pipes that are causing these water-loss claims,” said Farmer, who is also a former president of the Florida Justice Association, which represents trial attorneys.
Citizens was able to demonstrate to regulators in September that a “disturbing” rise in water-damage claims in South Florida was at the root of its request for an average rate increase next year for many homeowners.
Appearing before the Office of Insurance Regulation in August, Gilway argued that the rate proposal for 2016 would have been for an average decrease if not for the growth in claims — driven by attorneys who specialize in water damage — in Miami-Dade, Broward and Palm Beach counties, which comprise a large portion of the state-backed insurer’s portfolio.
Gilway said Citizens, which could dip below 500,000 policies by the end of the year, has seen water-damage claims in Miami-Dade County grow from 1 in 12 homeowners with a Citizens policy in 2012 to 1 in 8 this year. And in that time, the average cost for a claim has grown from under $9,000 to nearly $15,000.
Citizens, with 506,910 policies in place as of Nov. 30, noted that in 2014, 39.2 percent of policyholders filing water claims in Palm Beach, Broward and Miami-Dade counties hired attorneys or public adjusters before filing the initial claims. Elsewhere in the state, only 4.2 percent of policyholders making water claims retained attorneys or adjusters last year — a number that has jumped to 9.3 percent in 2015.
Citizens would also like to get lawmakers to change what are known as “assignment of benefits” requirements in state law. In assignment of benefits, homeowners turn over the right to seek benefits to third parties, such as contractors.
Rollins said current law involving assignment of benefits has served as an “accelerant” for spreading water-damage claims outside Southeast Florida.
Farmer also questioned the desire by Citizens to alter rules regarding assignment of benefits.
“They know that if consumers are left to fend for themselves, they’re going to get paid less,” Farmer said. “The insurance companies are going to pay out less, because the consumers are not going to recognize where they’re being underpaid.”
Such proposed changes have been difficult to advance in past legislative sessions.