Aug. 26--If not for the steep increase in water-loss claims in Miami-Dade County, South Florida customers of the state-run Citizens Property Insurance Co. would get to save money on their insurance premiums next year, like most Citizens customers throughout the state.
Instead, Citizens has decided that its South Florida policyholders must pay for claims activities that the insurance industry and supporters in the state legislature call fraudulent.
Citizens officials went on the offensive against Miami-Dade County attorneys, public adjusters and water-loss restoration companies at a workshop in Tallahassee on Tuesday, saying rates would have decreased for homeowners in Miami-Dade, Broward and Palm Beach counties if not for a "disturbing rise in water claims and litigation."
"We obviously have to respond and we have to respond aggressively," vowed Barry Gilway, Citizens president and CEO.
Rates for multi-peril single-family home policies -- the most common policy -- would increase 2.9 percent in Broward, 0.7 percent in Palm Beach and 7.6 percent in Miami-Dade -- and decline in all other Florida counties except Monroe if Citizens' recommended rate changes are approved in early September by the state Office of Insurance Regulation.
Rates for wind-only policies, unaffected by the water claims, will increase an average of 8.8 percent in the 29 coastal counties where they are sold. That's partly because private "takeout" companies have absorbed the least risky properties, leaving Citizens to insure a "mixed bag" of "problematic" properties, officials said. That's also because wind-peril rates are artificially low for coastal properties and are still being increased each year until they reflect actual cost of covering the risk.
Water claims -- mostly damage stemming from broken pipes inside homes -- now account for more than half of every premium dollar paid by policyholders in Miami-Dade, Gilway said.
In the three Southeast Florida counties, Citizens paid out $1,452 for every policy in 2014 compared with $976 in 2013 and $664 in 2012, officials said. In all other counties, $162 was paid out for every policy in 2014.
One in eight Miami-Dade policyholders filed a water damage claim last year, compared with one in 12 two years before, Gilway said. Ninety percent of water damage claims originate from Miami-Dade, he said.
"Let me be crystal clear," Gilway said in prepared comments released during the meeting. "Water losses are THE major reason Citizens is seeking rate hikes for the coming year, especially in South Florida. Were it not for water loss, even South Florida policyholders would see rate reductions."
At the workshop, officials defended the decision to impose higher rates on property owners in Broward, Palm Beach and Miami-Dade as "actuarially sound" even though almost all of the claims originate in Miami-Dade. Water loss claims in the three counties combined were significant enough to justify grouping them together to "protect" the rest of the state from rate hikes, said Brian Donovan, chief actuary, and Paul Kutter, director of forecasting and research.
"Communities that incur the losses must ultimately pay higher rates to fund the frequency and cost of those claims," said John Rollins, Citizens' chief risk officer.
Citizens has deployed an investigative team to South Florida to closely study water-related claims and train adjustors to recognize claims fraud, Gilway said. Citizens also will develop a team of water repair contractors who can respond to problems without involving attorneys and public adjustors, Citizens spokesman Michael Peltier said after the workshop.
Citizens officials -- and representatives of other property insurers -- have been warning for several years about looming effects on insurance rates from disproportionately large numbers of water-loss claims and lawsuits originating in Miami-Dade.
In legislative committee workshops last spring, critics charged that plumbers who respond to household emergencies are given finder's fees for recommending homeowners contact water loss restoration companies. Those companies in turn require homeowners to sign over benefits of their insurance policies before commencing work, then file lawsuits against Citizens for inflated claims, critics say.
Rollins called the South Florida situation "the exception to the good news" of a downsized Citizens. Most remaining policyholders are seeing lower rates thanks to an absence of hurricanes, cheap reinsurance and a decline in sinkhole-related claims, he said.
Responding to suggestions by water restoration companies last spring that more pipes break in Miami Dade because the county has more older homes, Gilway said Citizens could not find evidence of construction issues or other anomalies in Miami-Dade that would explain the much higher rates of water loss claims.
"When you take a look at Miami-Dade and you take a look at the rest of the state, there's really no major differences in age of home, or frankly, virtually any other characteristic," Gilway said. The obvious conclusion, he said, "is there's more fraud."
But efforts over three years to pass laws that would restrict homeowners' ability to sign over benefits of their property insurance policies to water loss restoration companies have failed. Supporters of the laws blame opposition by trial attorneys and their supporters in the legislature.
Attorneys have countered that the ability to assign benefits is a constitutionally protected right upheld by courts and vital for initiating services covered by insurance, including medical work and auto repairs, without spending cash up front.
rhurtibise@sun-sentinel.com, 954-356-4071
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