Citizens Property Insurance Corporation, the state-run not-for-profit insurer, has proposed to increase its average premium rates by 8.2% in 2019, driven by costly water-damage claims in South Florida.
If approved by the Citizens Board of Governors and the Florida Office of Insurance Regulation, the increase would impact personal lines policyholders from September 2019.
The insurer proposed a 7.9% rate increase in its 2019 rate package earlier this year, but its Board of Governors voted to defer its verdict on the proposals until December.
Citizens explained that the primary driver of the rate increase is litigated water claims, 94% of which are coming from South-East Florida, despite the region only accounting for 57% of Citizens’ homeowners liability coverage.
The claims relate to water damage from issues such as burst pipes rather than storm-related damages, which Citizens has largely been able to offload on to reinsurers.
Citizens criticised assignment of benefits (AOB) practices for driving up its costs, under which homeowners sign over insurance claims to contractors, who then pursue payments from insurers.
Nevertheless, Citizens continued to reduce its exposure in other areas such as Hurricane risk, as the company was able to transfer the majority of its risk to reinsurers for a relatively affordable price.
This year, the insurer transferred $1.42 billion of its Coastal Account risk to the private sector at an estimated cost of $55 million, marking the fourth year in a row that it can sustain a 1-in-100 year storm.
Citizens’ reinsurance only cover policies in its Coastal Account, but it noted that the its program does also lower the probability that policyholders in its Personal Lines Account (PLA) and Commercial Lines Account (CLA) will face a surcharge due to deficits in the Coastal Account.
“While rates for many policy types and areas have been approaching actuarial soundness over the past few years, this recent surge in claims related to non-weather water losses in South Florida has increased Citizens’ net claims payments and litigation expense costs,” a statement from the insurer said.
“These losses are significant enough to offset previous progress made toward rate adequacy and the decreased cost of reinsurance and other risk transfer products, resulting in the need for a corresponding rate increase.”
Citizens originally delayed its rate proposals in order to give water loss policy language changes time to take effect and to afford South Florida policyholders more time to recover from Hurricane Irma.
The company is required by law to recommend rates that are actuarially sound while complying with a legislative glide path that caps rate increases at 10%.