Insurance company warns of 'crisis' on claims issue

TALLAHASSEE, Fla. – Inaction by Florida lawmakers to address a spike in water-damage claims could reverse years of work to shrink state-backed Citizens Property Insurance, the company's president said Wednesday.

President and CEO Barry Gilway warned the Citizens Board of Governors that policyholders can expect to see annual rate hikes that approach 10 percent in South Florida, where water-damage claims have been the most prevalent.

Gilway told the board that the company will need to do a better job making lawmakers aware of the potential damage to the insurance industry in Florida unless restrictions are placed on a controversial insurance practice known as "assignment of benefits."

"I just don't believe that we got the story across that this is a crisis, this is going to reverse all the improvement we're seeing in the overall marketplace over the last two to three years," Gilway said.

Assignments of benefits often arise when homeowners need repairs for problems such as water damage. Homeowners sign over benefits to contractors, who ultimately pursue payments from insurance companies.

The issue drew heavy lobbying from groups such as insurers, trial attorneys and contractors during the legislative session that ended Friday. But lawmakers were unable to reach agreement on the issue and went home without resolving it.

The insurance industry sought restrictions on assignment of benefits, which it contends leads to fraud and a proliferation of lawsuits. When Citizens asked for an average rate hike in September, it pointed to a growth in water claims in Miami-Dade, Broward and Palm Beach counties, which comprise a large portion of the state-backed insurer's portfolio.

But plaintiffs' attorneys and contractors argue, in part, the practice helps homeowners hire contractors quickly to repair damage and also can help force insurers to properly pay claims. The trial lawyers and contractors also contend that assignment of benefits can help prevent consumers from having to fend for themselves in insurance disputes.

Citizens Board member James Holton said Citizens should consider asking Gov. Rick Scott to convene a "blue ribbon" panel, which would include private carriers and The Florida Bar, to address assignment of benefits and the water-damage claims.

"That might be an idea to spotlight this issue as we get ready for the next legislative session," Holton said.

The Board of Governors agreed to move forward in asking the state Office of Insurance Regulation to set new rules aimed at reducing non-storm water-damage claims.

Among the proposed changes would be to let policyholders get premium discounts by agreeing to use Citizens' managed-repair program, which would link customers with contractors who have been vetted by Citizens.

"The guiding principle here is to use a surgeon's scalpel, not a meat cleaver, to modify our coverage in such a way that abusive claims are discouraged but legitimate claims are protected, and the policyholder is protected, in the case of making a legitimate water claim," Citizens Chief Risk Officer John Rollins said.

The Office of Insurance Regulation is reviewing a prior request by Citizens that would require losses to be reported within 72 hours and to cap temporary and emergency repairs at $3,000, with additional money for repairs available after approval from Citizens.

Water-damage claims are at times reported weeks after repairs are done. Gilway said as private insurers raise rates to deal with increases in assignment-of-benefit claims, policyholders will seek to return to Citizens.

Citizens, along with the rest of the insurance industry in Florida, has benefited from a decade of no hurricanes hitting the state. Its policy count has dropped from 1.5 million to under 500,000 in the past three years.