Florida's property insurer of last resort has announced its board has approved an 8.2 percent rate increase, citing growing litigation costs and non-weather water losses.
In a statement earlier this month, Citizens Property Insurance Corporation said its Board of Governors has approved its 2019 rate package, which includes an 8.2 percent statewide average increase for personal lines policyholders such as homeowners, condominium owners, and renters.
If the Florida Office of Insurance Regulation approves the proposed package, the hiked rates will impact new and renewal policies from September 1, 2019.
According to the statement, Citizens has experienced a surge in non-weather water losses – broken pipes, leaky washers – and litigation surrounding those non-hurricane-related claims, especially in South Florida. These losses have forced the insurer to dip into surplus for each of the past four years, the statement said.
If approved, the recommendation will see rates increase next year for 97 percent of homeowners with multi-peril policies.
And litigation, Citizens says, is the key driver.
“Unfortunately, our customers are paying the price for these exaggerated losses,” said Gary Aubuchon, interim chairman of Citizens Board of Governors. “The unnecessary increase in litigation continues to take a toll.”
According to the statement, the number of lawsuits filed against Citizens grew from 9,146 in 2013 to 10,357 for the first nine months in 2018. Private insurance companies have seen litigation nearly triple to 53,160 cases during that same period. If litigation were to return to pre-2013 levels, nearly all Citizens multi-peril policyholders would see rates decrease, the statement said.
The uptick in lawsuits is said to stem from Assignments of Benefits (AOB) abuse. AOB abuse can occur after a restoration professional assesses the damage to the home and encourages the homeowner to sign an AOB. As a result, homeowners give the vendor the right to communicate exclusively with the insurance company as well as negotiate and endorse insurance claim payments. They may also file a lawsuit against the insurance company without the homeowner’s knowledge.
Through September 2018, Citizens has received 2,617 AOB-related lawsuits for the year, up from 860 in 2013 and on track to surpass a 2016 peak of 3,242.
The 2019 recommendations also take into account policy language changes that became effective on August 1, 2018. Citizens actuaries factored in anticipated savings from Citizens’ Managed Repair Program, which is expected to reduce litigation costs surrounding non0weather water loss claims.
In April, Citizens announced it will limit the amount it will pay policyholders who use outside contractors for non-weather-related water damage.