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Property insurance rates in Florida are on a steady climb.

Pundits blame claims abuse as the primary culprit, specifically the abuse of assignment of benefits which makes the claims process litigious and costly.

Assignment of benefits (AOBs) involves allowing policyholders to sign over their claims to a contractor, which gives the contractor the right to collect payments from the insurance firm. Local media outfit Naples Daily News reports that these AOBs cost state-owned Citizens Property Insurance Corp $27 million in losses last year.

Michael Peltier, a Citizens spokesman, also said in the report, “The disturbing part is we are expecting an even greater loss for the upcoming year.”

The rising premiums from the past five years were also less to do with natural catastrophes than broken pipes, dishwashers and water heaters. Insurers say the rise in claims is largely due to fraudulent activity.

“The private market is experiencing the same trend that Citizen is, from all of the indications we’ve gotten,” Peltier added. “It’s not just our problem.”

Legislators are acting to address the abuse. State Senator Kathleen Passidomo recently sponsored a bill that would curb claims abuses, but it did not pass legislative muster.

“It was really a consumer protection bill that would allow consumers to get out of some of those contracts that they unknowingly signed,” she told the Daily News. 

“It had some really good provisions that the Office of Insurance Regulation, the insurance industry and consumer advocates all supported. That bill was not heard.”

Passidomo and Senator Dorothy Hukill are currently working on another bill that they plan to file in the next congressional session and they’re “going to pursue this with a vengeance,” the senator said in the report.

She added that legislative remedies are needed because the fraud is spreading to other parts of the state.

Democrats and Republicans, who have agreed on little this year, have found common ground on plans to give private insurers greater access to the $5 billion flood insurance program and to offer more buyouts for homeowners in areas likely to be repeatedly submerged.

“Flood insurance seems to be one of those few areas where Democrats and Republicans see the same problems and, in a lot of instances, see the same solutions,” Rob Moore, a senior policy analyst with the National Resources Defense Council, said in an interview.

At issue is the National Flood Insurance Program, which is $25 billion in debt. Congress has until the end of September to reauthorize the federal program. If it doesn’t act the real estate market along coasts and rivers will come to a halt, because homeowners need that insurance to qualify for federally-backed mortgages. In the wake of Hurricane Sandy the program paid out $8.4 billion to help cover the costs of rebuilding.

Last Thursday, Republican Congressman Sean Duffy of Wisconsin, chairman of the subcommittee that oversees the program, released draft legislation to overhaul it. Those changes overlap heavily with change House Democrats are seeking, according to a document from the Democrats on the House Financial Services Subcommittee on Housing & Insurance obtained by Bloomberg.

The bipartisan agreement among the House lawmakers covers a range of topics, including expanding the role of private flood insurers, getting the federal program to buy more reinsurance on the private market, and making it easier for homeowners that keep getting flooded to move somewhere else.

“This shows an incredible amount of work,” Roy Wright, the deputy associate administrator at FEMA who oversees the National Flood Insurance Program, said in an interview. He said the odds are good of Democrats and Republicans eventually reaching a deal.

The process has a long way to go before these changes would become law. Even if the House agrees on these reforms, the Senate and President Donald Trump must agree as well. And, as happened in the last flood insurance overhaul, changes may end up being rescinded after they become law if they cause premiums to skyrocket.

And some areas of disagreement remain among the House lawmakers.

In the draft legislation released Thursday, Republicans propose ejecting from the program homeowners who keep getting flooded but don’t want to sell their houses. Democrats wouldn’t eject them. And Republicans would impose fewer conditions on private insurers who want to sell flood insurance.

Still the main areas of agreement between the parties is large. The “draft incorporates ideas from both Republicans and Democrats,” Mark Bednar, Duffy’s spokesman, said in an email.

Under these plans, insurers and reinsurers would see an increase in their potential market. The federal flood insurance program takes in about $3.5 billion in revenue each year, and covers about $1 trillion in risk. While private insurers can partner with the program, signing people up in return for a share of their premiums, few private insurers sell their own policies. The program recently bought reinsurance for the first time.

Expanding the space for private insurers could benefit Marsh & McLennan Cos. and Aon Plc, the largest insurance brokers by revenue in the U.S., according to data compiled by Bloomberg. Swiss Re AG, Munich Re and Transatlantic Reinsurance Co. have signed reinsurance agreements with the Federal Emergency Management Agency, which runs the program.

The changes could also reshape coastal neighborhoods. Both parties say they support more voluntary buyouts of homes that repeatedly flood. Under that approach, the federal government uses money that comes in through flood insurance policies to purchase high-risk homes, then demolishes them. Expanding those buyouts could shrink neighborhoods along the Atlantic and Gulf Coasts, in such places as New Jersey, Virginia, Florida and Louisiana.

Both parties also want the federal government to shield poorer households from rising flood insurance premiums, by offering vouchers or other subsidies based on people’s incomes. They would increase the amount of money available to protect homes from flooding, such as moving buildings onto stilts.

“A fair amount of this will be part of the final legislation,” Larry Larson, senior policy adviser for the Association of State Floodplain Managers, said by email after the Republican draft was released. Still, “it has a long way to go yet.”

Lead by example, so goes an old adage.

Especially in driving, as a new study has found that teenage drivers, who are most susceptible to car crash fatalities, take their cue from their parents when it comes to driving behaviour.

The Chicago Tribune reports that a joint study by Students against Destructive Decisions (SADD) and Liberty Mutual found that parents set a pretty bad example for teens to follow, particularly with regard to using their cell phone.

“Parents are not great role models,” Gene Beresin, SADD senior adviser, said in the Tribune report. “As a matter of fact, they’re pretty poor role models for teenage driving.”

Specifically, the study noted that distracted driving now accounts for one in four car crashes.

The study surveyed 2,500 teens and 1,000 parents. Among others, it found that 55% of parents use apps while driving and 62% say they use their phone to take calls while behind the wheel.

Thirty three per cent of teens have asked their parents to put a stop to such behavior, the study also found.

The risky behavior also extends to parents calling their teens even if they know that the youngster is behind the wheel: 50% said they were guilty of calling their teens, while one third expect a response before their teenager reaches their destination.

“The good news is this sets the stage for a conversation between parents and teenagers,” Beresin observed.

The report outlines some suggestions to prevent fatal teen car crashes. Among them:
 

• Do not let your teen drive when they are tired. Encourage them to call you to pick them up or call a cab to ride home because the survey found that 10% of teens have admitted to falling asleep behind the wheel due to tiredness
• Program navigation and music apps prior to a trip. These are the two most commonly used apps by teens and have often been a source of distraction. “Program a playlist ahead of time. If the phone is within reach and you hear or see a notification, you’re going to be very tempted to either look down or pick it up. And the bottom line is you don’t need to,” Beresin emphasized.
• Set a distinctive ring and text tone for emergencies so your teen can ignore their phone when the call is not urgent

In its second seasonal tropical forecast for the North Atlantic basin for the 2017 season, IBM’s The Weather Co. said it now expects a total of 14 named storms, seven hurricanes, and three major hurricanes, a slight increase in activity from its forecast in April.

In April, the firm predicted 12 named storms, seven hurricanes, and three major hurricanes

The new numbers include Tropical Storm Arlene, which formed in April.

The current forecast numbers are more than the long-term 1950-2016 normals of 12/7/3 but slightly fewer than the recent “active period” (1995-2016) normals of 15/8/3.

According to Dr. Todd Crawford, chief meteorologist at The Weather Co., there could be more increases in the numbers ahead.

“There has been a clear trend over the past month towards warmer North Atlantic ocean temperatures and a less bullish view on El Nino development/magnitude, both of which favor a more active 2017 Atlantic tropical season than originally thought,” Crawford said. “Dynamical model forecasts are also more aggressive this month relative to last. The big North Atlantic blocking in May has favored continued increases in Atlantic water temperatures, which suggests that we may need to move our numbers up a bit more in our June update.”

The National Oceanic and Atmospheric Administration (NOAA) and the National Weather Service are scheduled to announce their initial outlook for the 2017 Atlantic hurricane season this Thursday.

Four automakers agreed to a $553 million settlement to address class-action economic loss claims covering owners of nearly 16 million recalled vehicles with potentially defective Takata airbag inflators, court documents filed on Thursday showed.

Toyota Motor Corp.’s share of the settlement costs is $278.5 million, followed by BMW AG at $131 million, Mazda Motor Co. at $76 million and Subaru Corp. at $68 million.

While the settlement does not mean an end to legal headaches faced by Takata Corp or its car maker clients, the resolution could help the embattled Japanese air bag maker’s efforts to search for a financial sponsor by removing one litigation uncertainty.

Shares of Takata, which was not named as a plaintiff in the case, jumped 20 percent in Tokyo on Friday. Takata has been searching for more than a year to find a financial sponsor to pay for costs to replace its inflators which are at the center of the auto industry’s biggest-ever recall.

U.S. auto components maker Key Safety Systems (KSS) and private equity fund Bain Capital are trying to strike a rescue deal worth around 200 billion yen with Takata’s steering committee and its automaker customers.

The settlement highlights the knock-on effect of the recalls, which began around 2008 and covers around 100 million inflators around the world used in vehicles made by 19 automakers.

Takata’s inflators can explode with excessive force and unleash metal shrapnel inside cars and trucks, and are blamed for at least 16 deaths and more than 180 injuries worldwide.

“This is a settlement between us and our customers,” said a Tokyo-based spokeswoman for Mazda.

Lawsuits against Honda Motor Co., Ford Motor Co. and Nissan Motor Co. have not been settled, lawyers said.

Takata declined to comment on the settlement.

The four automakers that settled said in a joint statement they agreed to the deal “given the size, scope and severity of the Takata recall,” but did not admit fault or liability. The automakers said the settlements, if approved by a Florida judge, will be overseen by a court-appointed administrator.

The settlement includes an outreach program to contact owners; compensation for economic losses including out-of-pocket expenses; a possible residual distribution payment of up to $500; rental cars for some owners; and a customer support program for repairs and adjustments, including an extended warranty.

In January, Takata agreed to plead guilty to U.S. charges of criminal wrongdoing and to pay $1 billion to resolve a federal investigation into its inflators. The majority of the air bag-related fatalities and injuries have occurred in the United States.

Automakers have recalled 46 million Takata air bag inflators in 29 million U.S. vehicles. By 2019, automakers will recall 64 million to 69 million U.S. inflators in 42 million vehicles, regulators said in December. Most inflators have not been fixed.

Florida businesses shouldn’t expect relief for workers’ compensation rates, this year at least. The Florida Legislature failed to pass legislation this session addressing 2016 decisions by the Florida Supreme Court that sent the state’s workers’ comp system into disarray and led to a rate increase of 14.5 percent.

After much back and forth between the House and Senate over their respective bills, it came down to attorney fees, which the industry says are to blame for the majority of the rate increase.

Lawmakers sought to reform the state’s workers’ comp system through two bills – House Bill 7085 and Senate Bill 1582 – in response to decisions by the Florida Supreme Court that found aspects of the Florida Workers’ Comp Act unconstitutional.

[Lawmakers also failed to pass other closely-watched insurance reforms addressing insurance claims (assignment of benefits) abuse. Watch for Insurance Journal’s upcoming report on the AOB legislation.]

Debate over the Senate and House bill went on throughout the final legislative day on Friday with the House, in an attempt to lure the Senate to its side, passing an amendment capping attorney fees at $180 an hour on approval by a judge of compensation claims. The Senate version of the bill capped attorney fees at $250 an hour versus the House’s previous $150 an hour cap. On Friday, the Senate voted not to lower the cap in its bill to $200 an hour, but the House still tried later to compromise with the $180 cap.

Another key difference in the Senate version was a provision moving Florida to a loss-cost system. Rep. Danny Burgess, who sponsored the House bill, told House members “the jury’s still out” on whether a loss cost system leads to a premium reduction, based on data from states that had switched to this model.

Burgess said he hoped the Senate would agree to the attorney fee compromise so lawmakers could get “something across the finish line.”

“The bill, as it stands today is on the end of the rope,” he told House members Friday. “[We are] trying to provide substantial reform to address rising rates from recent court decisions…We have to solve this problem before us. Every small business in the state of Florida is watching us now.”

The Florida Supreme Court’s decisions that caused the upheaval came in two cases – Castellanos v. Next Door Company and Westphal v. City of St. Petersburg. The biggest cost driver behind the 14.5 percent rate increase, according to the National Council on Compensation Insurance (NCCI), was Castellanos. That decision found the state’s mandatory attorneys’ fee schedule for workers’ compensation cases eliminated the right of a claimant to get a reasonable attorney’s fee — a “critical feature” of the workers’ compensation law. The impact of the Castellanos decision equaled 10.1 percent of the 14.5 rate increase, while Westphal accounted for 2.2 percent.

Burgess said the House version could offer up to a 5 percent reduction in rates and the Senate’s version would offer only about a 1 percent reduction.

The insurance industry supported the House version, agreeing that attorney fees are the main cost driver behind rate increases. The Property Casualty Insurers Association of America (PCI) said the bill would have addressed “decisions by the Florida Supreme Court rulings that could cause workers compensation rates to increase by 14.5 percent in the state, costing Florida job creators more than $1.5 billion.”

But ultimately, the two branches couldn’t reach an agreement before time ran out for lawmakers on Friday night.

Florida businesses now have the rate increase to contend with and the possibility of additional rate increases next year. An actuary from the National Council on Compensation Insurance (NCCI) told the Florida House at a hearing last month that it is reasonable to expect that there would be continued pressure on rates without legislative reform.

The Florida Chamber of Commerce called lawmakers’ failure to enact reform a “failed fix to Florida’s broken workers’ comp system” and said it was a missed opportunity by lawmakers to make Florida more competitive.

(Bloomberg) -- State Farm Mutual Automobile Insurance Co., the largest U.S. home and auto insurer, plans to shut 11 U.S. facilities, displacing about 4,200 workers, after a $7 billion annual underwriting loss last year on auto policies.

The insurer will exit Parsippany, New Jersey, and Petaluma, California, in 2018 and the other locations by 2021, the Bloomington, Illinois-based company said Thursday in a statement on its website. The work will move to the headquarters and offices in cities including Atlanta, Dallas and Phoenix. The company said employees in affected facilities will have opportunities at other State Farm locations.

State Farm, Allstate Corp., Hartford Financial Services Group Inc. and Warren Buffett’s Berkshire Hathaway Inc. are among companies that have been burned in recent years by higher claims expenses from car crashes as more drivers are distracted by electronic devices. Higher repair costs have also hurt in an era when drivers are logging more miles behind the wheel. Companies have been charging more for coverage and looking for ways to reduce costs.

Chief Executive Officer Michael Tipsord is working to improve results at the insurer after being named in 2015 to replace Ed Rust, who led the policyholder-owned company for three decades. Net income dropped to $400 million last year from $6.2 billion in 2015, hurt by the auto insurance results. The company posted better returns on businesses including residential coverage, banking and mutual funds. State Farm has almost 70,000 employees.