It’s been 20 years since Hurricane Andrew ripped the roof off of Dr. Albert Zbik’s South Miami-Dade home, and flung it into his pool.
Zbik recalled that his insurer at the time, State Farm, reacted “superbly” in the chaotic hours after the storm, handing him a $10,000 check for his family’s immediate living expenses.
Now, he’s covered by Citizens Property Insurance Corp., which has been raising rates and slashing coverage under the premise that it is one storm away from financial collapse.
“I don’t think Citizens would treat me as well” as State Farm, he said. “They’re cutting back on coverage. It’s an impending nightmare.”
Sign Up and Save
Get six months of free digital access to the Miami Herald
Though history and science indicate hurricanes like Andrew hit Florida about once every 50 years, its 20th anniversary and the latest approaching tropical storm — Isaac — have many asking a crucial question: What would happen to the state’s largest insurer this year if another super-storm slammed Florida?
Despite Citizens’ claims of financial instability, a review of its books shows the insurer would, in fact, have enough money to pay its claims after an Andrew-like storm. After seven hurricane-free years, Citizens has amassed a giant cash surplus of $6.2 billion, making it highly unlikely that the state-run insurer would have to levy so-called “hurricane taxes” to pay for claims after a storm.
However, homeowners covered with Citizens may find that getting a claim filled can involve of a whirlwind of litigation, coverage denials and fine-print surprises.
For Zbik, rather than receiving $10,000 upfront, he estimates that he would have to pay as much as $7,000 out-of-pocket before his Citizens coverage kicked in. Since Hurricane Andrew, private insurers like State Farm have pulled out of large swaths of the state, leaving homeowners with a government-run insurance company that, in many cases, does not want them.
“Our objective is to remove policies from Citizens, and then provide them with qualified alternatives to Citizens,” said company president Barry Gilway. “That will be a huge area that I focus on and my team focuses on.”
At the direction of Gov. Rick Scott, Citizens has advanced a series of rate hikes and coverage reductions, in an aggressive campaign to make the state-run insurer less attractive than the shrinking private market.
Company leaders regularly point to state law that says when Citizens runs out of money, it must levy so-called “hurricane taxes” on most consumers to cover its shortfall. Those taxes are tacked onto annual insurance premiums as “assessments,” and Floridians are still paying charges stemming from the brutal 2004 and 2005 hurricane seasons.
But during the recent hurricane-free streak, Citizens has saved up billions of dollars, a treasure chest that could withstand all but the most devastating of storm seasons without needing a taxpayer bailout.
Compared to the 2004 and 2005 hurricane seasons — which did trigger a taxpayer bailout and emergency assessments — Citizens today has four times as much cash to cover a storm. It has nearly twice the number of policies (1.4 million). It has $13.6 billion in investments, and an additional $8.4 billion in backup insurance to cover claims.
As a result, the state-run insurer could withstand the statistically unlikely occurrence of another Andrew-sized storm this year. Consumers not covered by Citizens may have to pay a small surcharge of no more than $17 for every $1,000 they pay in annual premiums (about $28 for the average homeowner).
The charges — which pale in comparison to the hundreds of dollars Citizens cites when it warns of dreaded “hurricane taxes” — might not come for at least two years after a storm.
Despite Citizens’ relatively strong financial position, Scott and insurance executives have painted the insurer as an over-exposed liability on the brink of financial calamity. They have used hypothetical examples of apocalyptic super-hurricanes to push forward rate hikes and coverage cutbacks, an effort to force consumers back into the limited private market.
The coverage reductions — many of which were enacted in the last 12 months — could significantly increase the out-of-pocket expenses for homeowners if a storm hits.
Kevin Roth, of Oakland Park, got a letter this year saying Citizens would no longer insure his screened-in porch or carport. Despite losing coverage for the so-called “detached structures,” his rates still went up.
If an Andrew-like storm hits the Fort Lauderdale area, Roth will be on his own for much of the repair-work.
“We’re talking between $10,000 and $40,000,” he said, upset that other homeowners have not voiced their disgust with the coverage cutbacks. “When the next hurricane comes — and it’ll come — people are going to submit claims and then Citizens is going to come and say ‘We told you. We’re not covering this’.”
Other recent changes at Citizens limit coverage for floor damage and sinkholes, repairs that homeowners may have to pay for out-of-pocket after a storm.
Roth said that after a storm, he would have to decide how much of his home to leave unrepaired, and whether or not to just flee the state.
Before any hurricane taxes come into play, most Citizens customers who suffer damages would have to pay an insurance deductible of several thousand dollars. The size of those deductibles has quietly been increasing under Citizens’ risk-reduction campaign.
“I would estimate I’d have to pay $5,000 to $7,000,” said Zbik, noting that he paid nowhere near that amount to have his roof rebuilt by State Farm back in 1992.
Citizens recently began using a controversial new home valuation software program that, in many cases, has increased the estimated replacement value of homeowners’ properties. As a result, deductibles — which are based on total value — have jumped as well.
For Joe Freitas, of Pasco County, the new valuation means he’ll have to spend $5,919 before his Citizens insurance kicks in to pay for damages. That’s a $2,444 increase from what he was required to pay before Citizens revalued his property with the new software, he said. Freitas has brought a class-action lawsuit against Citizens and Xactware, the company that created the valuation software.
In his lawsuit, Freitas claims homeowners “will suffer, not only from unreasonably higher premiums, but also from unreasonably higher windstorm deductibles due to Citizens’ and Xactware’s misrepresentation of property replacement-cost values.”
Citizens has denied the allegations, stating that the software helps to “establish appropriate coverage amounts.” The state-run insurer is fighting the lawsuit.
It is one of thousands of lawsuits Citizens is currently involved in, as the insurer has become increasingly litigious in recent years.
For homeowners who are struck by a major storm, they may find that the path to receiving compensation from Citizens runs through the courthouse.
Lawsuits over denied insurance claims at Citizens have increased by more than 500 percent since 2008, even though no hurricanes have hit the state during that time.
Rep. Frank Artiles, R-Miami, said Citizens is spending millions of dollars each year fighting homeowners’ claims as part of a strategic maneuver to reduce the amount of money it spends repairing homes.
“I have examples of cases that have cost Citizens $360,000 in attorneys’ fees, when the dispute was $30,000,” Artiles said, adding that some homeowners have to endure lengthy legal battles before they can repair their homes.
Company spokesperson Christine Ashburn said the rise in lawsuits can be attributed to the increase in Citizens’ size and a jump in incoming claims.
Citizens has amassed an army of lawyers not only to fight disputed claims, but also to combat the growing problem of insurance fraud.
Since Andrew, Florida’s reputation as a hotbed for homeowner fraud and insurance fraud has grown considerably, and scammers have learned new methods for profiting from natural disasters and economic tragedy.
Citizens says it has lost hundreds of millions of dollars to fraudulent claims for sinkholes and other loss categories in recent years.
Experts say a repeat of Andrew could unleash a cottage industry of tricksters looking to exploit vulnerable homeowners and Citizens through fraudulent means.
More than 700,000 of Citizens’ 1.4 million policyholders are receiving discounts for taking extra measures to shore up their homes against hurricanes.
“We put on a stronger roof” after Andrew, said Zbik. “My wife and I went out and bought the hurricane shutters and we have them sitting in our garage.”
But even stronger building codes and fortification efforts have become a source of frustration for many Citizens policyholders. More than 175,000 homeowners have seen their wind-mitigation discounts stripped as a part of a massive reinspection program launched by Citizens. And several homeowners in regions with strong building codes (like Monroe County) believe Citizens does not adequately reward them for building hurricane-resistant homes.
After seven years without a major storm, many homeowners have not been as vigilant about planning for the next hurricane, and the insurance complexities that could follow.
For Zbik, who recalls Aug. 24, 1992, like any other major life event, the prospect of the next Hurricane Andrew is ever-present. “It’s not a matter of if,” he said. “It’s when.”