BY FRANK ARTILES
This year the Legislature is considering proposals that, if passed, would give massive subsidies to the private reinsurance industry, paid for by significantly higher rates for policy holders.
These unregulated, largely offshore reinsurers operate with no rate controls or consumer oversight. In stable markets, reinsurance is insurance for insurance companies, policies bought in relatively small amounts to protect carriers from the remote chance of a very large disaster.
The departure from Florida of national brand carriers like State Farm has led to an unstable market. Since 2005, over 2.5 million policies have been cancelled, resulting not only in the growth of Citizens Property Insurance Company but also of private insurance companies.
These Florida carriers now serve over half the homeowner’s insurance market and they are the only remaining private market carriers writing new business. Regulators and rating agencies require companies to annually demonstrate strict financial claims paying ability designed to ensure that they can pay claims from catastrophic storms.
In order to meet these financial requirements, they must purchase reinsurance every year. This additional annual expense for reinsurance is the biggest cause for the explosion in the cost of homeowner’s insurance.
The two sources for this reinsurance are private reinsurance companies and the Florida Hurricane Catastrophic Fund (Cat Fund), a state agency. Private reinsurance is extremely expensive, taking as much as half or more of every premium dollar collected from policyholders.
If there is no major storm, reinsurers pocket the premium. On average, reinsurers charge five times more than the actuarial risk of loss, meaning that 80 percent of the premium charged is pure profit.
The very same national brand carriers that have fled Florida own some of them. State Farm, which has shed hundreds of thousands of Florida policies and continues to write lucrative auto coverage in Florida, is the largest shareholder in Da Vinci Reinsurance, a company specializing in selling reinsurance to start-up Florida-based carriers.
By contrast, reinsurance coverage from the Cat Fund costs much less, as little as 10 percent of the cost of private reinsurance. Also, unlike private reinsurance, unused premiums paid to the Cat Fund are available to pay claims in future seasons.
The reinsurance lobby understandably hates the existence of the Florida Cat Fund. Every dollar of reinsurance purchased from the Cat Fund costs private reinsurers nearly $1 billion in lost profits per year. In an effort to regain lost profits, the reinsurance lobby insists the Cat Fund won’t be able to raise enough bonding money to pay its bills, which they say would result in mass failures of insurance carriers, followed by general disaster and mayhem.
Bonding estimates prepared by market experts show that the Cat Fund has nearly $4.5 billion in excess bonding capacity over two years. But, according to state loss models, a 1:100 year storm (1 percent probability each year) would result in a less than 2 percent Cat Fund assessment on policyholders, about $60 per year for the average household.
A proposal recently debated in the Senate would have raised rates an estimated 5 to 10 percent by reducing the capacity of the Cat Fund by as much as $5 billion per year, coverage that would then have to be purchased from the private reinsurers.
In other words they want policy holders to accept a 100 percent chance of paying on average $150 to $300 per year to avoid a 1 percent chance of paying $60.
This nonsensical approach has already dug a deep hole. Florida carriers have paid $26 billion for private reinsurance over the last seven storm-free years, premiums that could have strengthened cash reserves in the Cat Fund, paid for a repeat of the 2004-2005 storms, and lowered rates by 20 percent, but instead left Florida forever as unregulated payments line the pockets of private reinsurers.
It’s time to stop digging. The consumer group, FAIR (Florida Association for Insurance Reform) has offered a modest alternative, which would expand the Cat Fund by $2 billion. This alone would reduce private carrier property insurance rates by at least 7 percent, making them more competitive with Citizens and giving a boost to Florida’s economy.
State Rep. Frank Artiles, R-Miami, has a Master of Law in Real Property Development from the University of Miami Law School and is a general contractor and public adjuster & appraiser.
In his guest editorial in the Herald Tribune, “If Citizens Loses We Will All Pay,” former Rep. Thomas Danson misstated key facts. The Citizens regular assessment levied on ratepayers with private companies after a major catastrophe is limited to 2% for one year, not a maximum of 18% as he stated. He also refers to over $500 billion of “hurricane risk.” That is actually the total insured value of all properties insured by Citizens. A series of storms would have to strike everywhere in the state all at once and literally level every insured building for that number to have any relevance.
The reality is that if the “big one” hits (a 1:100 year storm), Citizens rate payers are by far the hardest hit. They could see a one-time 45% surcharge on their property insurance bill at their next renewal. Private ratepayers would see a maximum one-time 2% surcharge. Virtually all ratepayers would see assessments from the Florida Hurricane Cat Fund (which backs all property insurers including Citizens) and the Florida Insurance Guarantee Association (FIGA) (which pays claims after private carriers go bust). Using 1:100 year projected total losses from Citizens and the Florida Insurance Consumer Advocate, starting at the second renewal after the storm, total assessments from the three entities would be about 5% a year for 30 years, hardly a scary number. In fact, Citizen’s ratepayers would actually pay more to subsidize losses from private companies than private rate payers to subsidize Citizens losses. Also, Citizens also has more surplus than all of the private carriers combined and is the only company other than USAA that has an A+ rating with the Weiss rating agency. Citizens had one assessment from the 2004-5 storm seasons which expires in a couple of years. FIGA just had an assessment last year when a private carrier went bust. Look for it on your next policy renewal.
Former Rep. Danson’s column is part of an orchestrated effort, a “chicken little” chorus of opinion columns from politicians, right-wing “free market” think tanks, and reinsurance industry shills designed to scare the legislature (about to start session in March) into raising property insurance rates. Already one powerful Senate committee has released a draft bill that would force private carriers to buy more expensive reinsurance, an extra cost that would be passed on to policyholders. Their logic goes something like this: Policyholders should pay 10 or 15% more in ‘reinsurance taxes’ every year (100% chance) to avoid a less than 1% chance of paying 5% more a year in assessments.
A rival proposal from FAIR would lower the rates paid by policyholders by at least 7% by replacing expensive private reinsurance with much cheaper Cat Fund reinsurance, helping to spur the real estate market and the Florida economy in general. It would also make the private carriers much more competitive with Citizens meaning more policies would move into the private market.
Take a moment to contact your legislators as to whether you would rather have a 7% rate cut or pay as much as 15% more in reinsurance taxes:
click here: CONTACT YOUR LEGISLATORS
To The Editor:
In the wake of a report from Governor Scott’s Inspector General criticizing Citizen’s travel expenses, some have called for the removal of the entire Citizens Property Insurance Corporation Board of Governors. This would be a huge mistake for Citizens policyholders and impede progress toward restoring Florida’s private property insurance market. Whatever its size or future, while it exists, Citizens needs to be a good property insurance company, not a political football.
Service on the Citizens Board is no cake walk. An equivalent position in the private sector would provide a six figure compensation package. The Citizens Board members work for free. The considerable time these Board members are required to spend could be spent earning money in the private sector, meaning that in terms of opportunity costs, it actually costs them to serve. They do not serve to pad resumes. They have already reached the pinnacle of their professional lives.
Consider the two appointees of Governor Scott: John Wortman, now in retirement age, once presided over Louisiana’s version of Citizens and offers decades of experience. John Rollins is a brilliant actuary, Duke University graduate, and a leading expert in his field. Although we have often disagreed on policy issues, I know them both to be conscientious and honorable public servants.
The other Board members are no less qualified, conscientious, or honorable in their service. That Florida taxpayers receive the benefit of their combined service for free is an exceptional value that should be preserved.
There are other challenges to service on the Citizen’s Board. The eight members are appointed two each by four state officials—the Governor, CFO, Senate President, and House Speaker. As political appointees they are subject to Sunshine laws, meaning that they cannot talk company business to each other outside of public meetings. For a new Board, most appointed less than two years ago, this means that getting a grasp on the culture and operations of a large complex company requires time and a steep learning curve. It also means that staff has an advantage in what information they choose to share or withhold—power that can be used to manipulate Board decisions. As a result, mistakes have been made. The Board harmed consumers by agreeing to staff proposals for reductions in coverage levels and to an ill-fated surplus notes program that was eventually abandoned. But other decisions have been both tough and prudent. Within the first year of their tenure, the majority of the Board realized that new leadership was needed. Just seven months ago, they appointed an outsider and seasoned industry veteran as CEO, Barry Gilway. He has no easy job. Reforming a large bureaucracy, like turning around an aircraft carrier, doesn’t happen on a dime. The Board and Mr. Gilway have also now come to recognize that reducing policy coverage is not a solution for depopulation of policies, rejecting an unwise staff proposal to set a $15,000 sub limit for water damage. They immediately got it right when news of excessive travel expenses came to light in the press. Governor Carol Everhart presented a motion to conform Citizens travel policies to those followed by the rest of state government. Governor Don Glisson strongly advised abolishing company credit cards, which was promptly done.
We must also consider the cloud removal of this Board would cast over future Board recruitment. The best and brightest will simply decline to serve rather than risk public embarrassment in such a toxic political environment.
Individuals who violated policy should be disciplined, consistent with sound human resource practices and due process, not out of concern for how it will look in the newspapers. The problem for everyone else has already been solved. You can bet that all at Citizens will now think twice before every spending decision.
Florida Association for Insurance Reform
Editor’s Note: The Citizens Board followed FAIR’s recommendation voting Friday to authorize staff to withdraw the HO8 rate filing if OIR refuses to budge.
December 14, 2012The Honorable Kevin McCarty Florida Insurance Commissioner 200 E. Gaines Street Tallahassee, FL 32399
Dear Commissioner McCarty:
Citizens Property Insurance Corporation was mandated by 2012 legislation (House Bill 1101) to offer a scaled down homeowner’s insurance policy known as a Homeowners 8 (HO8). Citizens recently filed this policy language with the Office of Insurance Regulation for review and approval with the applicable insurance rate to be charged to consumers at approximately 7% less than their standard homeowner’s policy. From testimony at the Citizens Market Accountability Advisory and Consumer Services Committees yesterday, it appears that the Office of Insurance Regulation (OIR) wants to require that Citizens offer the HO8 policy at nearly 30% less than the standard HO3.
There are several negative public policy implications that could result if the OIR position is implemented. 1) On its face, this significantly less expensive rate may sound like an attractive alternative for consumers seeking to reduce their homeowner’s insurance costs. But the much more limited coverage would ultimately harm consumers who incur losses from non-covered events. HO8 policies were designed to be a niche product for homes with conditions or characteristics that made them an unacceptable HO3 risk, not as a mainstream pricing alternative. In addition, at least one form of the HO8 coverage is not acceptable to lenders under Fannie Mae/Freddie Mac guidelines. Ultimately, lenders facing losses from uninsured and unrepaired damage could resort to force place coverage to protect collateral. 2) Agents will be placed in a difficult position of placing these low cost low coverage policies for their clients or losing business to agents who would use the HO8 price point to poach business. Inadequate disclosure issues, real or perceived, would be rampant. 3) A Citizens HO8 policy with such a significant pricing differential would threaten Florida’s consensus public policy objective to downsize Citizens. Policies currently secured by the private market could flood back into the corporation at the lower price point. Private companies would be pressured to develop their own HO8 to complete.
Citizen’s rate filing is actuarially sound, in complete compliance with applicable statutes, and should be approved by your office. We applaud the Insurance Consumer Advocate, and responsible insurance agents’ groups and associations for their support of the Citizens filing and join them in opposition to the OIR position. If your office continues to insist on the 30% rate differential, we further urge the Citizens Board of Governors to withdraw the filing until a reasonable agreement can be made.
Jay Neal, Executive Director
The Florida Office of Insurance Regulation (OIR) will make a decision next week on whether to approve an 11.2% average rate increase for policy holders of the Citizens Property Insurance Corporation. FAIR strongly recommends that this decision be temporarily delayed. In 2009, the Florida legislature faced two competing policy goals: 1) to bring Citizens rates up to actuarially sound levels at which the private market could compete and 2) to protect policyholders from large and sudden premium increases. The policy balance they struck was to establish a “glide path” within which rates would increase to actuarially sound levels, but do so gradually, by no more than 10% annually. Citizens has been accused of using “backdoor” rate increases to sidestep both the glide path and also OIR review. Before approving the current rate request, OIR should fully review the impact that at least three Citizens initiatives have already had on increasing rates. The three areas that should be reviewed include: replacement value calculation methods, reductions in coverage levels and limits, and the highly controversial wind mitigation reinspection program.
In 2010, Citizens began to use a computer software program called 360Value to estimate the replacement values of insured homes. In 2011, that contract was renewed without competitive bid because “no other company provider has the ability to facilitate software modifications…” FAIR has reviewed hundreds of cases for which this software as much as doubled the actual replacement cost as determined by certified residential appraisers for the subject properties. Where policy limits are doubled, premiums follow. And because both wind and sinkhole deductibles are calculated as a percentage of stated replacement value, those amounts were doubled as well, meaning policyholders would be faced with twice the amount out of pocket if faced with a claim. Despite complaints from policyholders who had no other home insurance options, Citizens initially refused to accept other appraisal methods. The legislature responded this year by mandating that Citizens accept these alternative appraisals. Still, the 360Value software continues to be widely used. The evidence suggests that not only are thousands of policyholders still paying inflated premiums for excess coverage they can probably never use, but also that Citizens loss exposure may be exaggerated, possibly causing private carriers to shy away from assuming these policies.
Citizens has also reduced what is covered under insurance policies, without reducing rates. Personal liability limits were reduced from $300,000 to $100,000, coverage for carports, pool and patio enclosures, and other external structures was eliminated, and some deductibles increased. Simple logic dictates that selling less of something for the same price is no different than increasing the price.
Finally the legislature established a wind mitigation discount program to incentivize homeowners to make improvements proven to reduce damages from tropical storms and hurricanes. Thousands of homeowners hired licensed home inspectors to complete inspection forms certifying that they had invested in those mitigation features and qualified for discounts. Citizens instituted a reinspection program to verify those mitigation features. To date, of the over a quarter of a million homes reinspected by Citizens, nearly 74% or close to 200,000 homeowners were stripped of discounts. On average this increased premiums for these homeowners by 23% or $600 annually. These statistics strongly indicate that this program should be subject to close scrutiny byindependent parties. If legitimate wind mitigation features are being understated, this will also make these policies less attractive to private carriers. In fact, there is a legitimate question as to whether the Citizens reinspection program is legal. The statute allows insurers to review inspection forms before granting credits, not after. And inspection forms are supposed to be good for up to five years as long as no material changes are made to the home.
There is relentless political pressure to increase Citizen’s rates so that the private market will assume more business. But in fact, there is increasing evidence is that the glide path is working. The CEO of one Florida private insurance carrier stated that over 2/3rds of Citizens policies are already actuarially sound. Consumer Advocate Robin Westcott testified last week that the policy was working and that some areas, like Broward County, were already on average above actuarially sound levels.
Still, the law is the law and legislative intent should be followed. During a three to six month delay, OIR could easily evaluate these initiatives. A reasonable sample size of both replacement values and reinspection reports should be reviewed by independent auditors. An actuarial analysis of Citizen’s claims files should be made to evaluate the reduction in exposure provided by lower policy levels. And an independent legal opinion on the legality of the reinspection program must be made. If aspects of these initiatives are found to be working, these audits will help to reestablish the legitimacy of Citizen’s actions with both policy holders and policy makers. By taking these reasonable actions, the OIR has an opportunity to do real service to the policyholders they protect and make sure that the transition from Citizens to private market alternatives is both orderly and fair.
FAIR The Florida Association for Insurance Reform
How familiar are you with your homeowners insurance policy?
What type of insurance policy do you have?
Do you know what perils are covered if your home was ever damaged and in need of repair?
Unsure where your policy is and need a copy? Request one from your insurance carrier or your insurance agent. Ask for a certified copy to ensure that all sections are included.
An informed policyholder is the best policyholder!
HO1 – Basic Form Homeowner Policy
A basic policy form that provides coverage on a home against 11 listed perils; contents are generally included in this type of coverage, but must be explicitly enumerated. The perils include fire or lightning, windstorm or hail, vandalism or malicious mischief, theft, damage from vehicles and aircraft, explosion riot or civil commotion, glass breakage, smoke, volcanic eruption, and personal liability. Exceptions include floods, earthquakes. Most states no longer offer this type of coverage.
HO2 – Broad Form Homeowner Policy
A more advanced form that provides coverage on a home against 17 listed perils (including all 11 on the HO1). The coverage is usually a “named perils” policy, which lists the events that would be covered.
HO3 – Special Form Homeowner Policy
The typical, most comprehensive form used for single-family homes. The policy provides “all risk” coverage on the home with some perils excluded, such as earthquake and flood. Contents are covered on a named peril basis. (Note: “All Risk” is poorly termed as it is essentially named exclusions (ie, if it is not specifically excluded, it is covered))
HO4 – Renter’s Insurance
The “Tenants” form is for renters. It covers personal property against the same perils as the contents portion of the HO2 or HO3. An HO4 generally also includes liability cover for personal injury or property damage inflicted on others.
HO5 – Premier Homeowner Policy
Covers the same as HO3 plus more. On this policy the contents are covered on an open peril basis, therefore as long as the cause of loss is not specifically excluded in the policy it will be covered for that cause of loss. (can also be achieved by endorsing an HO15 to the HO3)
HO6 – Condominium Policy
The form for condominium owners.
HO8 – Older Houses
The “Modified Coverage” form is for the owner-occupied older home whose replacement cost far exceeds the property’s market value.
For each policy, there are typically 5 classifications of property coverage. These are based on standard Insurance Services Office or American Association of Insurance Services forms.
Coverage A – Dwelling
Covers the value of the dwelling itself (not including the land). Typically, a coinsurance clause states that as long as the dwelling is insured to 80% of actual value, losses will be adjusted at replacement cost, up to the policy limits. This is in place to give a buffer against inflation. HO-4 (renter’s insurance) typically has no Coverage A, although it has additional coverages for improvements.
Coverage B – Other Structures
Covers other structure around the property which are not used for business, except as a private garage. Typically limited at 10% to 20% of the Coverage A, with additional amounts available by endorsement.
Coverage C – Personal Property
Covers personal property, with limits for the theft and loss of particular classes of items (e.g., $200 for money, banknotes, bullion, coins, medals, etc.). Typically 50 to 70% of coverage A is required for contents, which means that consumers may pay for much more insurance than necessary. This has led to some calls for more choice.
Coverage D – Loss of Use/Additional Living Expenses
Covers expenses associated with additional living expenses (i.e. rental expenses) and fair rental value, if part of the residence was rented, however only the rental income for the actual rent of the space not services provided such as utilities.
Covers a variety of expenses such as debris removal, reasonable repairs, damage to trees and shrubs for certain named perils (excluding the most common causes of damage, wind and ice), fire department changes, removal of property, credit card / identity theft charges, loss assessment, collapse, landlord’s furnishing, and some building additions. These vary depending upon the form.
In an open perils policy, specific exclusions will be stated in this section. These generally include earth movement, water damage, power failure, neglect, war, nuclear hazard, septic tank back-up expenses, intentional loss, and concurrent causation (for HO-3).
REPOSTED FROM EAST COAST PUBLIC ADJUSTERS BLOG
Stymied by lawmakers who have balked at larger premium increases for Citizens Property Insurance Corp., advocates for higher rates at the state-run insurer are proposing a backdoor plan that skips legislative approval.
A proposal to stop capping rates for new policies will go before the Citizens board Thursday, setting the stage for a potential political “firestorm,” one expert predicted.
If approved, the plan would leave Florida’s largest property insurer with a multi-tiered rate structure. Price increases would still be capped at 10 percent for existing customers, but new policies could jump substantially.
Proponents contend that increasing Citizens’ rates could make private insurers more competitive, potentially luring companies back to Florida’s beleaguered insurance market.
But critics say the proposal is legally questionable and likely to be challenged in court. They worry the plan would hurt the real estate industry in areas such as Sarasota County, where Citizens is a dominant carrier.
Homeowners might be hesitant to move if it means a big spike in insurance costs. Buyers from outside the region could also think twice if insurance becomes too expensive, said Sen. Mike Fasano, R-New Port Richey, a frequent Citizens critic.
“You will see future home buyers that will not be able to afford a home if they put these new rates in place,” Fasano said Tuesday. “How does that help our economy?”
Fasano successfully rallied his colleagues in recent years against legislation backed by Gov. Rick Scott and many top lawmakers designed to allow larger rate increases than the 10 percent cap established in 2009 and to move customers out of Citizens.
As a result, Scott has urged a Citizens board that includes a number of his appointees to make administrative changes that shrink the company without legislative approval.
During a visit to Sarasota earlier this month, Scott told local business leaders that “we are focused on depopulating Citizens.”
Questioning the legality
Even some insurance industry experts who generally support efforts to reduce Citizens’ market influence say the latest proposal goes too far.
Jeff Grady, president of the Florida Association of Insurance Agents, said Citizens’ rates need to more realistically reflect the company’s liabilities after a major disaster. But he questioned the legality of lifting a rate cap without legislative approval.
State laws says Citizens’ annual rate increases shall “not exceed 10 percent for any single policy issued by the corporation.”
Citizens lawyers are now making the case that the language applies only to existing policies and that the company can charge higher rates to new customers. But that is not how Citizens has operated since the rate cap was passed.
“It’s going to be questioned whether this interpretation is the right one, particularly if Citizens has a precedent of acting one way and then starting to act another,” Grady said.
Insurance agents already are angry with Citizens because “they don’t understand why the consumer who has been put into the situation of having no other choice but Citizens is being beat up,” Grady said.
Removing the rate cap for new policies could breed more resentment and create a backlash if it appears the agency is skirting the proper legal channels and “doing things some might think are not in the light of day.”
“People start to question your motives and develop constituencies that make something that might be a problem before an even bigger one,” Grady said. “I worry that if people start to challenge these things the real progress that might be made could be stunted.”
Citizens board member John Rollins said in a brief email that the proposal to uncap rates and other new efforts to shrink the company’s exposure “have been vetted by Citizens general counsel as not requiring legislative actions.”
Rollins did not offer his thoughts on the policies, noting “we’ll all have more to say” on Thursday. Citizens spokeswoman Christine Ashburn did not return a phone message.
The latest round of “exposure reduction initiatives” also includes a requirement that insurance agents submit documentation to Citizens certifying that no private carriers were willing to write a policy. There also is a proposal to increase minimum deductibles, meaning customers could be paying more for less coverage.
“The idea is just to make the policy really ugly,” so people will find another insurer, Grady said. “I kind of like it. I think it’s a clever idea except where there is really no other choice but Citizens.”
If Citizens is truly the only option, higher deductibles do not seem fair, Grady added.
A financial risk?
Citizens was created as the state’s insurer of last resort. It has become the largest property insurer in Florida with more than 1.4 million policies.
The company has the power to levy a tax on insurance policies throughout Florida if it runs out of cash to pay claims after a major disaster, leading Scott and many lawmakers to argue Citizens is a huge financial risk for Florida residents.
But with nearly $6 billion in reserves and a strong backstop of cash from the Florida Hurricane Catastrophe Fund, Citizens has the resources to pay claims without resorting to assessments in all but the most catastrophic hurricane.
Sarasota real estate broker Dave Beachy said the state should consider incentives for private insurers that take policies away from Citizens, but he worries about raising rates during a fragile economic recovery.
Beachy wrote in an email that most of his clients have no other option but Citizens and there could be fewer home sales if they are faced with larger insurance bills.
“Real estate is still trying to rebound from the bubble burst and raising the rates could slow down our recovery,” Beachy wrote.
Advocates for a Citizens rate hike say the company artificially holds down prices, stifling competition. As Citizens becomes more expensive, they say, private companies will become more attractive in markets currently dominated by Citizens.
But Sean Shaw, the former consumer advocate in the state Office of Insurance Regulation, said there is little evidence of that so far.
“That’s the great promise,” Shaw said, noting such theories “sound great in a textbook” but may not play out as expected in Florida’s complicated insurance market.
Insurers have collected unprecedented sums in premiums while Florida has gone a record six consecutive years without a direct hurricane strike. Yet rates continue to rise.
Shaw predicted a political “firestorm” over uncapped rates.
“There’s actuarially what you can charge and then there’s what people can actually stand,” he said. “There’s just a question of fairness that is a lot of times missing in these discussions when you’re reducing people to actuarial figures.”
Fasano believes consumers are at a breaking point with insurance costs. He expects a court challenge if Citizens’ board approves lifting the rate cap.
“The law is clear; they are not to raise rates as they are suggesting or moving towards,” he said. “They need to hold off until the Legislature takes action.”
As weather disasters strike with more frequency, U.S. homeowners first get hit with the destruction or total loss of property. Many are then hit with the unexpected loss of homeowners insurance policies as insurance companies re-evaluate their financial liabilities.
After a tornado ripped through Springfield, Massachusetts, last year, R. Paula Lazzari’s home was badly damaged. The retired teacher found broken windows, missing siding and a damaged roof. Her insurer offered to fund repairs for one broken window and some of the siding. It took nine months — and mediation services from an independent adjuster and the Massachusetts Division of Insurance — to get her bills paid, according to the parties involved.
“Insurance companies have significantly and methodically decreased their financial responsibility for weather catastrophes like hurricanes, tornadoes and floods in recent years,” the Consumer Federation of America said in a statement after studying industry data.
The industry concedes that it is trying to avoid getting trounced by those same punishing weather patterns.
“Last year (2011) was an extraordinary year for natural disasters,” said Michael Barry of the Insurance Information Institute (III), an industry trade group. “Insurers have taken a step back to assess whether or not they can absorb severe losses.”
STATES LEFT IN THE COLD
Some insurance companies have pulled out of weather-challenged states — meaning they will not write new homeowners policies and may not renew contracts with current policyholders.
In the wake of Hurricane Irene last summer, for example, Allstate informed some 45,000 North Carolina policyholders that it would not renew contracts that were not bundled with auto insurance.
After a spate of tornadoes last April caused $11 billion of property damage in Alabama, Alfa Mutual Group announced it would not renew 73,000 Alabama property insurance policies.
“The increased frequency and severity of storms over the last decade have highlighted the need for Alfa to review its overall property portfolio,” Alfa President Jerry Newby said in a statement.
Florida, where insurers have been dropping coverage since Hurricane Andrew in 1992, is a good example of where this can lead. With an annual average of $1,460 per home, homeowners’ premiums there are second-highest in the country (Texas, at $1,511, is first), according to the most recent data available, a 2010 report from the Insurance Information Institute.
“Florida’s off the charts when it comes to pricing,” said Mike McCartin, an Ashton, Maryland, independent insurance agent.
The state has stepped in to cover some 1.5 million properties via its Citizens Property and Insurance Corp. as insurers drop more and more homes.
“You simply have major private insurers that are unwilling to write policies in Florida,” said Robin Westcott, the state’s insurance consumer advocate.
“It’s just a tough market to be in,” said Phil Supple, a spokesman for State Farm, which was once Florida’s largest property insurer. It stopped writing new homeowners’ policies there in 2007.
CHERRY-PICKING OF CUSTOMERS
Even though companies are not abandoning states at will, many opt to drop coverage on individual homes or customers that may seem prone to file claims. Insurers generally work on three-year contracts with homeowners, Barry said. At the end of those contracts, insurers can decide to raise rates or not renew.
When frozen pipes caused flooding in Phil Berger’s Ijamsville, Maryland, home last year, he got a $6,000 check from Allstate for the damages — and a policy review. Berger said an Allstate contractor told him to make $100,000 in repairs to his home at his expense or he would lose his coverage. He refused, and instead found a less expensive policy with a company that required only one smaller repair before covering the home.
“You just need to be on your toes at all times,” Berger said.
Allstate declined to comment on Berger’s case, but sent an email response to general questions about the company’s non-renewal policies.
“Allstate responsibly manages its risk by opting to not renew policies as warranted,” company representative Kevin Smith wrote. “These actions are carefully considered, and help ensure Allstate’s continued ability to provide a wide variety of insurance products to consumers at a competitive rate, while remaining financially strong in every community we serve.”
PAYING MORE FOR LESS
Even homeowners that renew every year may find new limits buried in their policies. The Consumer Federation report said insurance companies have “sharply hollowed out the catastrophe coverage offered to consumers” by raising deductibles, capping replacement costs, and — significant for folks in the path of tornadoes and hurricanes — removing coverage for wind damage if another non-covered event (usually a flood) also occurs.
Industry groups say this misstates the facts.
“The (CFA) could not be more wrong,” said Dr. Robert P. Hartwig, president of the Insurance Information Institute. “Cities such as Tuscaloosa, Birmingham and others are being rebuilt today because of private insurance companies paying losses — not from ‘hollowed out coverage’ policies.” Insurers have paid “literally billions” of dollars to “hundreds of thousands of claimants” affected by natural disasters, he said.
Hartwig also defended the practice by some insurance companies of leaving certain states or regions.
“If you tell an insurance company that they can’t raise rates despite nine hurricanes in two years, obviously insurers are going to have to reduce exposure,” he said.
But homeowners’ insurance premiums have been rising. They have increased an average 6.33 percent annually between 2002 and 2009, according to the National Association of Insurance Commissioners (NAIC). This year, insurers have asked for rate increases of 18 percent or more in 11 states, according to the Consumer Federation.
Robert Hunter, the author of the consumer report, has questioned whether limit-laden policies are worth the rising costs. But mortgage lenders require homeowners insurance, and anyone who has observed a devastating house fire or storm is unlikely to be willing to go without coverage.
So how can consumers, who have little choice but to keep their coverage, do as Berger suggests and keep on their toes?
Hunter tells homeowners to shop carefully. “Go on your state’s insurance policy website and look for houses similar to yours to compare prices,” he said.
The NAIC provides a map to all state insurance regulatory offices on its website, and provides information about consumer insurance complaints.
Hunter also recommends checking comparison websites such as insuranceproviders.com— or insweb.com — for companies with favorable consumer reviews for in your state.
Another step is to get a professional agent to help, said Jim Donelon, Louisiana’s insurance commissioner and president-elect of the NAIC.
“I recommend you talk to as many people as you can. Get an independent agent — someone who’s not attached to a specific company — and get in touch with captive agents but know that captive agents can only represent their company.”
The agents can check to make sure no important coverage — like wind — has been carved out of the policy.
Compare what the agents offer with what you can find online, said Randy Moses, South Dakota’s insurance commissioner.
Even after getting coverage, consumers may find they need extra help. Lazzari needed both an independent broker and a public adjuster to resolve her case. Her insurer, Norfolk & Dedham Insurance, not only initially refused to pay for most of her home repairs, but also planned to drop her as a customer, she said.
Francis T. Hegarty Jr., president and CEO of Norfolk & Dedham Group, confirmed her version of events, but said it was not unusual for claims such as Lazzari’s to take time to resolve.
Lazzari contacted an independent broker who worked with Norfolk & Dedham to successfully complete her home repairs. But the broker said switching insurers would increase her payments 185 percent. That’s when Lazzari contacted the Massachusetts Division of Insurance to find a public adjuster, who eventually persuaded Norfolk & Dedham to keep her on its rolls.
“We were eventually able to work things out with Ms. Lazzari,” said Hegarty. “In these kinds of cases with independent adjusters, the claims tend to get strung out and tend to take longer to resolve than they would otherwise. But cases like this case are pretty common and, all in all, we’re pleased with how things turned out with her.”
By Matt Stroud, Reprinted From Reuters.
March 26, 2012The Public Records Unit Florida Department of Financial Services 200 East Gaines Street Tallahassee, FL 32399-0307
Dear Custodian of Records,
We write to request copies of all Department of Financial Services (DFS) notes, drafts of proposals, analyses, and other memoranda regarding currently proposed rules changes to 69B-220.051 (Conduct of Public Adjusters and Public Adjuster Apprentices) and 69B-220.201 (Ethical Requirements for All Adjusters) (which were the subject of a Workshop on March 22, 2012) as well as records of all internal and external communications between DFS and representatives of the insurance industry, lobbyists, FL legislative branch, FL executive branch, and any other party regarding the above cited proposed rules changes. These requests are made pursuant to the Public Records Act, Chapter 119 of the Florida Statutes.
These requests include copies of every document related to the matter, regardless of the format in which the information is stored, including records such as emails stored on-line or by computer.
If you refuse to provide this information, Chapter 119 requires you advise us in writing and indicate the applicable exemption to the Public Records Act. Also, please state with particularity the reasons for your decision, as required by Section 119.07(2)(a). If the exemption you are claiming only applies to a portion of the records, please delete that portion and provide photocopies or data storage of the remainder of the records, according to Section 119.07(2)(a).
We agree to pay the actual cost of duplication and/or data storage as defined in Section 119.07(1)(a). However, if you anticipate that in order to satisfy this request, “extensive use” of information technology resources or extensive clerical or supervisory assistance as defined in Section 119.07(1)(b) will be required, please provide a written estimate and justification.
We request that these records be available by April 27th, 2012. If you have any questions or need more information in order to expedite this request, please call 888-745-5551 X112.
Jay Neal Executive Director
Tallahassee, Fla A class action lawsuit filed earlier this month in state court against the Citizens Property Insurance Corporation was amended yesterday to include new causes of action. Since at least 2010, Citizens has used a modified replacement value model called 360-Value to substantially overstate replacement value coverage for Florida consumers resulting in massive “back door” rate increases not intended by the Florida Legislature or approved by the Office of Insurance Regulation.
Information received after the initial filing clearly shows that executives at Citizens conspired with 360-Value to deliberately defraud policyholders through this replacement value model.
The amended complaint can be viewed here
FAIR is a non-partisan non-profit association advocating for balanced insurance reforms.
Persons harmed by the actions of Citizens will be able to find information on how to join this action by visiting the Citizens Class Action Lawsuit Page Here.