Depopulation efforts and rate adequacy progress have been more than offset by a significant rise in non-weather water losses in South Florida, driving a need for rate increases, warns Citizens Property Insurance Corporation (Citizens), the state-run not-for-profit insurer.
Despite Citizens’ combined Hurricane Irma and Michael losses topping $2 billion, the firm’s President, Chief Executive Officer (CEO) and Executive Director, Barry Gilway, explains that substantial water loss litigation in the state is driving a need for rate increases, rather than an increase in wind premiums.
In recent times, the state-run insurer has embarked on widespread depopulation assisted by a reinvigorated private market, which the insurer says has dramatically reduced the financial risk to Floridians.
The insurer had made progress toward rate adequacy, and highlights the benefits of more efficient reinsurance and other risk transfer solutions. According to the firm, its recent efforts mean that for the first time, its claims paying ability ensures it can now handle a 1-in-100 year storm followed by a 1-in-41 year event, absent the need to levy assessments on policyholders.
However, in spite of the progress made, the substantial rise in non-weather water losses and associated litigation, such as the state’s assignment of benefits (AOB) abuse issue, a trend exacerbated by events like Hurricane Irma, has offset previous progress, warns the insurer.
“Nonweather water loss claims submitted with an AOB cost on average of three times more than claims without an AOB and are more frequently litigated. AOB claims also are ripe for abuse as Citizens often is not given the opportunity to inspect the damages or approve permanent repairs before they are completed,” explains Citizens.
Ultimately, events such as Irma have sparked a rise in AOB abuse in the region, and is a major factor driving up non-weather water losses and the insurer’s need to increase rates.
Citizens proposes a statewide personal lines rate change of 8.2%, a commercial residential rate change of 8.3%, and a commercial non-residential increase of 9.7%. Overall, the insurer is proposing a rate change of 8.3%.
Fixing the state’s AOB issue would contribute to a decline in litigation rates, which in turn would drive a lower statewide rate indication. The insurer is anticipating a litigation rate of almost 50% of all water claims, compared to previous levels of 10% to 12%.
“Returning to previous litigation levels would drop the statewide rate indication from 26 percent to around 1 percent. South Florida would have a zero percent overall rate indication and the rest of the state having a 2.9 percent rate indication,” explains Citizens.
Gilway added: “Citizens is doing what we can internally to address these cost drivers. On the water loss front, we have implemented a managed repair program and offer emergency water removal services, provided by licensed, vetted companies that are free to the consumer regardless of the cause of loss.”
The rise in AOB abuse and non-weather water losses in the state is a challenge for Citizens and other insurers and reinsurers that operate in the region, and it will be interesting to see what action firms take to address this at the renewals.
