Originally published by Sun-Sentinel |
South Florida homeowners will pay higher premiums for years to come unless state lawmakers take steps to stop the tide of rising water loss claims, assignment of benefit abuse and increased litigation.
Left unchecked, these challenges will put home ownership out of reach for many Floridians.
Following years of increases, Citizens Property Insurance Corporation in 2014 reduced rates for 86 percent of our policyholders. We did not set out intending to reach that goal. Rather, we relied upon standardized, accepted actuarial principles and procedures that clearly indicated that premium decreases were warranted. It's the same process we follow every year.
Last year, those exact actuarial principles translated into hikes for 84 percent of our policyholders. Unless there are statutory reforms, that trend will continue. In Broward, the owner of a $242,000 home would see Citizens rates jump from $3,099 this year to $4,991 in only five years. Private carriers may raise rates by even more.
Across the state, the frequency and severity of water loss claims has doubled since 2011. Private insurance companies are experiencing the same thing. We have ruled out such factors as age of home, location, and type of construction. Instead, more claims are coming to Citizens not by the policyholder but by contractors and attorneys who take over control of the claim through an assignment of benefit.
These claims are more expensive and more likely to be accompanied by a lawsuit. Nonlitigated water claims costs between $5,000 and $9,000 to settle. Litigated claims cost $25,000 to $30,000. As a nonprofit insurance provider, Citizens has no choice but to pass those costs on to policyholders.
Insurance Commissioner David Altmaier is spearheading legislation that provides meaningful benefit for consumers by protecting them from a small but growing group of unscrupulous contractors and mitigation companies that take advantage of a stressful situation for their personal gain.
More importantly, the legislation would return a well-intended statute to its original purpose to protect ordinary homeowners who challenge "deep pocket" insurance companies in court. Increasingly, that law is being used by businesses to sue insurance companies, a scenario never intended under the original law.
Citizens is required by law to propose rates that are actuarially sound. Given recent trends and we do nothing, premiums will go up. Private insurance company premiums will likely rise at faster pace than Citizens, which is limited to 10 percent annual increases.
Equally troubling is that private companies will stop writing policies in certain parts of the state and Citizens' policy count will grow. As Citizens grows, so does the risk that Floridians will be forced to pay a hurricane tax if Florida is hit by a severe hurricane or series of storms.
Chris Gardner is chairman of the Citizens Board of Governors.