Citizens blames water claims, but reinsurance proves costly


Executives at Florida’s state-run insurer said Wednesday they may lobby to rewrite state law and raise rates more than 10 percent a year if South Florida water claims cannot be brought under control — but records show budget problems have been complicated by the company’s own spending.

Citizens Property Insurance Corp. paid about $300 million to private companies in Bermuda and other offshore locations, officials said, for reinsurance that did not pay for any customer claims in 2015.

How much is $300 million? It’s almost one in four of the premium dollars Citizens collected from customers in 2015, and a third of the $909 million in premiums Citizens expects to reap in 2016, records show.

“This is not a crisis,” said Nicole Vinson, a Tampa attorney who sues insurers and heads a group called Policyholders of Florida. “Ctizens is denying these claims even when the policy has clear coverage.”

As for the reinsurance spending, she said, the company “should have put the money in the surplus.”

Despite a decade with no hurricane landfall, Citizens expects to lose $67.7 million in its coastal account in 2016 — and spending on offshore reinsurance played a big role, company officials said at a board meeting Wednesday. The coastal account is one of three main groups of Citizens customers, but all groups combined are projected to do little better than break even, with net income of $13.4 million in 2016.

“I’m not second-guessing the reinsurance buy,” Citizens president Barry Gilway said, but he added “it’s clear we need to be as flexible as we can” on future purchases. For much of the coverage, Citizens is locked into multi-year deals.

“We were not ready,” he said, for a big drop in the company’s risk exposure as more customers moved to private insurers.

Private reinsurance is back-up coverage to help pay claims in the event of unusually severe and rare storms, and advocates have questioned whether it was needed.

Citizens, which has a surplus of more than $7 billion to pay claims plus the backing of a state hurricane fund, bought no private reinsurance at all five years ago. State insurance consumer advocate Sha’Ron James has questioned whether Citizens is “over-reinsured,” and she expressed concerns to the state insurance office in September.

With minor tweaks, regulators approved a 3.2 percent rate increase for Citizens in 2016, and 4.6 percent in Palm Beach County. Citizens slightly reduced overall rates the year before.

Private reinsurance would have helped prevent assessments to Citizens customers and others even if once-a-century megastorm had hit in 2015. But such an event had only a 1 percent chance of happening. Meanwhile, the money stays in foreign pockets if the coverage is not used in any given year or contract period. The hundreds of millions of dollars could otherwise remain in Florida and help build the company’s surplus year after year — and make Citizens’ budgets look a lot rosier.

Company officials said they expect to reduce reinsurance spending over time. But much of the coverage is in multi-year deals, so spending is expected to remain in nine figures for the next couple of years, including perhaps $164 million in 2016.

Citizens is rapidly reducing its risk exposure as its customer count is falling to near 500,000, from a high around 1.5 million, because many customers continue to transfer to private insurers.

Executives say that’s a good thing, but warn they may have to consider raising rates faster than state law currently allows — 10 percent a year — if they cannot get a handle on what they call abusive water claims in South Florida.

“We may have to lobbby for changes in the glide-path percentages,” Gilway said, referring to the 10 percent per year “glide path” for rates it considers less than adequate. Damage claims after problems such as a plumbing leak, particularly in Miami-Dade County, are “out of control,” he said.

A company spokesman clarified that was a worst-case scenario and said the company is not calling to abolish the rate cap at this time.

The Citizens board gave an OK Wednesday to a host of changes to be forwarded to state regulators for approval. Among them: Require that claims be reported within 72 hours of when policyholder knew or should have known that a loss had occurred; limit initial payouts for emergency services and temporary repairs prior to a report of loss to Citizens; and exclude coverage of permanent repairs completed prior to a Citizens inspection.

Last year, 39.2 percent of policyholders filing water loss claims in Palm Beach, Broward and Miami-Dade counties hired attorneys or public adjusters before filing an initial claim with Citizens, company oficials said. Elsewhere in the state, it was 4.2 percent. More than 98 percent of all litigated water claims start in the three-county South Florida region, officials said.

The Florida Chamber of Commerce applauded the moves. “Stopping fraud and abuse in the claims process is essential to ensuring that property insurance coverage is affordable and available to Florida’s working families, and to maintaining our state’s momentum in attracting new businesses and new jobs,” said executive vice president David Hart.

Attorneys and contractors have argued Citizens and other insurers are tring to “low-ball” consumers and those who represent them. They note past attempts to impose heavy restrictions have failed in the courts and the legislature.


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