Increases in water-damage claims — primarily in South Florida — will likely reverse years of downsizing by the state-backed Citizens Property Insurance, board members were advised Wednesday as they approved a hike in the corporation’s operating budget.
Citizens President and CEO Barry Gilway said efforts to shed policies have already slowed and that the number of personal-lines accounts handled by the corporation could grow by about 50,000 in 2017, as private insurers shy away from issuing new policies in Miami-Dade and Broward counties, where water-damage losses have grown most rapidly the past few years.
“With this deterioration of the marketplace, and the restrictions that are occurring, and multiple companies backing out of South Florida, we’re expecting growth,” Gilway said.
Citizens, which as of Friday had 472,207 policies, is looking at its numbers reaching between 504,000 and 577,000 policies next year.
Last week, Gov. Rick Scott said he’d like Citizens to further downsize to reduce the risk that all property owners could be assessed to cover future storm-damage claims by Citizens policyholders.
“We’ve got to rely on the private sector,” Scott said after an Enterprise Florida meeting at the Hilton Sandestin Beach Golf Resort and Spa. “We’ve got to make sure that we don’t have the risk that there’s assessments at the end for homeowners.”
Scott, who last week didn’t offer any number for how small he’d like to see Citizens, has made the reduction of Citizens a priority since taking office.
Over the past three years, Citizens has shed more than 1 million policies to the private market, a drop that was aided as Florida hadn’t been hit by a hurricane since 2005. That streak ended this year when Hurricane Hermine made landfall south of Tallahassee.
But Gilway said the so-called “depopulation” effort has been slowed in large part by the increases in water-damage claims unrelated to weather issues.
A news release Wednesday from Citizens said water-damage claims and litigation threaten the “corporation’s long-term financial stability and will stifle efforts by Citizens to offer premium breaks to policyholders in 2017.”
Gilway said Citizens will continue to lobby state lawmakers in 2017 to address the controversial issue of assignment of benefits, where homeowners in need of repairs sign over benefits to contractors, who ultimately pursue payments from insurance companies. The insurance industry has argued that assignment of benefits can lead to fraud and increased litigation, driving up costs.
But plaintiffs’ attorneys and contractors have countered that the practice helps homeowners hire contractors quickly to repair damage and forces insurers to properly pay claims. Plaintiffs’ lawyers and contractors also contend that assignment of benefits can help prevent consumers from having to fend for themselves in insurance disputes.
Citizens Chief Risk Officer John Rollins said the assignment of benefits issue would get “more airplay” if Citizens didn’t have a 10 percent cap on average annual rate increases.
If Citizens didn’t have the cap, multi-peril policyholders would face an annual bill closer to $4,000 in 2017 rather than the $2,500 average now in place, Rollins said.
The majority of homeowners with Citizens will see rate increases next year, with homeowners’ multi-peril accounts going up an average of 6.4 percent on Feb. 1, due to rates approved in September by the Office of Insurance Regulation.
Gilway’s comments came before the Citizens Board of Governors approved a $163.5 million operating budget for next year.
The approved budget is up 8.1 percent from the current year.
Within the budget, the overall cost of employee salaries is up 3.9 percent, to $96.78 million, costs related to temporary or outsourced staffing will go up 50 percent to $31.75 million, and software costs are up 20.7 percent, to $17.2 million. Meanwhile some parts of the budget, such as legal costs and rental costs, will decrease.
“We need to make our decisions, I think, not one year at a time, but over a multi-year period of time,” said Citizens Chairman Christopher Gardner.
The budget was approved as the Florida Office of Insurance Regulation on Wednesday announced up to 40,899 policies have been approved for a depopulation process known as “takeout” in February. The state agency approved three companies — Avatar Property & Casualty Insurance, Safepoint Insurance and Southern Oak Insurance — for the takeout round.
As private firms have historically sought to pick up the least-risky policies through depopulation efforts, Gilway said he expected the three insurers to pick up 10,000 to 15,000 of those policies, which “obviously doesn’t keep up with the new business flow that is coming in.”