Blog

Assistance provided by insurance experts working Florida’s Insurance Consumer Helpline led to the recovery of more than $16.6 million during the first half of 2017, according to a statement by Chief Financial Officer Jimmy Patronis.

Helpline experts answered more than 141,000 calls from Floridians during the first six months of the year and aided in the recovery of funds that included insurance claim payments and premium refunds that consumers sought the Department of Financial Services’ help collecting.

The Insurance Consumer Helpline is a free service offered to all Floridians that assists callers with financial and insurance-related matters including disaster preparation and insurance fraud, as well as questions and complaints regarding auto, home, health, life, and small business insurance.

According to DFS, one such claim related a homeowner after they received payment following Hurricane Matthew. The Pinellas County consumer contacted the helpline when her insurance company denied coverage for additional damage that had been discovered. Even after sending in additional documentation, she was unable to resolve the issue. Upon calling the company, helpline experts were told that a simple processing error was to blame, not a denial. The company promptly processed the claim, paying out an additional $4,700 to the consumer.

Another customer in Brevard County contacted the Helpline when medical claims payments related to treatment for her son never arrived. The company explained to helpline experts that the payments had been processed but the company could not explain why they had not been received. A widespread system error was discovered and the company realized that payment checks for 53 consumers had never been mailed. In total, more than $24,000 in unmailed payments went out to the 53 consumers, including the original caller.

Patronis said calls to the helpline also create a record of complaints on if a company is engaged in a practice that leaves a lot of consumers feeling mistreated. That alerts regulators and gives the public a way to keep track of companies that may be be stirring up problems.

Insurers have widely feared the entrance of big tech players like Amazon into the market - but now one major insurer has actually secured a partnership with the online retail giant.

US insurance giant Nationwide has teamed up with Amazon Alexa as part of its SmartRide safe-driving scheme. Clients of the scheme will be able to use special plug-in devices to access personalized driving information that might help to bring their insurance premiums down.

Members of the usage-based insurance program can gain telematic information through Alexa via devices like Amazon Echo, according to a report by The Columbus Dispatch.

Sam Rassekh, Nationwide’s vice president of enterprise digital optimization, said in a statement: “We recognize that digital voice technologies are becoming an increasingly popular method of communication, enabling consumers to quickly gain access to information, products and services through voice-recognition technology.”

The statement continued: “The Nationwide skill for Amazon Alexa gives our members an exciting way to connect with us. And, we are encouraged to know that the data they receive about their personal driving habits through the SmartRide capability within the Nationwide skill serves the greater purpose of promoting safe driving.”

Florida’s home insurers hope the public doesn’t blame them as they implement rate increases, initiate coverage changes and nonrenew policies.

They say they have no choice after the Florida Legislature for the fifth year in a row failed to address the crisis in water damage claims abuse.

“We keep saying help us try to solve this problem,” said Michael Carlson, president of the Personal Insurance Federation of Florida.

Since lawmakers reneged on enacting reforms, insurance carriers are now taking matters into their own hands and the state’s regulator is warning consumers to be prepared.

“We will continue to see homeowners’ insurance companies raise their rates for our consumers in a best-case scenario, and in a worst case scenario just simply stop offering their products in certain regions of the state,” Insurance Commissioner David Altmaier told the Florida Cabinet last month.

Altmaier said that worst-case scenario has the potential to “undo a lot of the great work” that has been done in depopulating the state-run insurer of last resort, Citizens, which has taken the brunt of the abuse, particularly in South Florida.

“This remains one of our number one priorities on the property and casualty side,” Altmaier said.

He was referring to escalating assignment of benefits (AOB) abuse from unlicensed water remediation and roofing contractors working with attorneys to cash in on a homeowners’ insurance policy for water damage claims. The problem has begun to spread to other segments of insurance, with auto glass claims using AOBs also on the rise.

The Florida Department of Financial Services has stepped up its abuse investigations. Former Florida CFO Atwater told Insurance Journal in May before he left office that the DFS is counting on the industry to alert it to any abuse it sees happening.

“This is a real financial crime. These people are making money off of these really exploited AOB claims –it is just sophisticated robbery from thousands of people who are having to embed that cost in their next premium payment. It is real,” Atwater said.

Insurance carriers say the marketplace has no choice but to respond by moving to cover the costs.

They are raising rates for homeowners’ policies across the state but say that is not enough after several years of the unchecked AOB abuse. So they are also appealing to the Florida Office of Insurance Regulation (OIR) to be able to do more.

“AOB will ultimately be addressed by the marketplace if lawmakers don’t do anything. The question is how harmful is that to a policyholder that isn’t out to cheat an insurance company – and it is harmful,” said Scott Johnson, who has worked on insurance issues for 40 years and currently runs his own consulting firm, Johnson Strategies. “AOB is the worst crisis I have seen.”

Citizens led the pack in lobbying for reform this past session, warning Florida lawmakers that without it the insurer’s policy count will start to climb again after years of depopulation efforts, and that homeowners could expect to see statutorily allowed rate increases of up to 10 percent for the foreseeable future.

Last month the warning became a reality when Citizens announced it would seek an overall statewide rate increase again this year, citing AOB as the reason.

Citizens also said it would submit a series of policy changes to the OIR that it hopes will reduce claims costs for nonweather water losses.

Among the major policy changes is a $10,000 cap on water loss repairs for customers who decide not to participate in Citizens’ Managed Repair Program.

Other policy changes include expanding obligations to third parties that accept an assignment of benefits. Currently, contractors who accept an assignment are not bound by the same obligations, including allowing Citizens adjusters to inspect a claim in a timely manner or providing proof that a loss has occurred.

“We were hoping for legislative change and a surgical solution,” said Barry Gilway, Citizens president/CEO and executive director. “Given that this did not occur in 2017, we cannot wait for the trends to worsen and take no corrective action.”

Commissioner Altmaier told the Cabinet that OIR is discussing changes to policy forms “in an attempt to curb what we believe are an unacceptable rise in costs in this market.”

Many insurers in the state are watching and waiting to see what happens with Citizens proposals, and will base their own requests to OIR on what is approved for Citizens.

“We will see further rate increases being filed [by insurers]. But as far as doing their due diligence as an insurance company, they will pursue whatever avenue they can get,” said Logan McFaddin, regional director for the Property Casualty Insurers Association of America (PCI).

Managed Repair, Preferred Vendors, Premium Discounts

Citizens is already employing one strategy – a managed repair program that provides its policyholders with free water extraction and drying services if they have a nonweather-related water loss. The Citizens Managed Repair Program also includes access to a network of licensed contractors through Contractor Connection. Policyholders can use the network to find a contractor to repair damage to its pre-loss condition with repairs guaranteed for a minimum of three years.

Citizens policyholders who do not want to use the program can hire their own contractors to do permanent repairs, but reimbursement may be limited to $10,000 starting in 2018, if approved by Florida regulators.

Other companies are exploring managed repair or preferred vendor programs as well.

Castle Key Insurance Co. and Castle Key Indemnity Co., Allstate Insurance subsidiaries that write about 2 percent of Florida’s homeowners market, offer preferred vendors to customers in the event of a claim.

“Who the customer chooses to work with on repairs is entirely their decision, however we do make vendors available if the customer does not have a contractor of choice,” said Cathy Mayo, Allstate Florida Region’s Field Corporate Relations manager.

“Preferred vendor programs are definitely helpful because an insurer is not going to use a vendor that turns around and sues them – it gets rid of that motivation to have an attorney enter the agreement,” said PCI’s McFaddin. “Other insurers could follow what Citizens does if they can make headway with OIR.”

In a statement to Insurance Journal, OIR said it wouldn’t comment on the Citizens filing, but anticipates that a public hearing will be held for Citizens annual rate filings, “where this issue may be presented in more detail by the company.”

OIR did say that it has approved some managed repair programs for other carriers in the past as allowed under Florida statutes, but hasn’t seen any new filings recently.

Those outside the industry – including public adjusters and law firms – have voiced opposition to such programs, saying they restrict policyholder rights.

Johnson says that response is not surprising.

“Guess I would say that too if I was a public adjuster or trial attorney. What is fair to them is something that inflates the claim by at least 20 percent because that’s how they get paid. What’s fair to an attorney is if there is a controversy. They need the conflict because that’s how they make their fees,” Johnson said.

He noted that more than half of water losses have been handled by firms that don’t use an AOB and there have not been consumer complaints on the work done. Preferred vendor programs are a tool for carriers to minimize their AOB losses, he said.

“Insurance companies are responding to the crisis by doing what they can to guide people to providers that don’t use AOBs,” he said.

Tampa-based VetCor, which provides restoration services across the state, works with 17 carriers as a preferred vendor and said it has never used an AOB on more than 2,200 jobs in its three years in business.

“There are disreputable contractors saying they can’t perform work because of big bad insurance carriers. That is accurate if you are going beyond the scope of needed work. These contractors are creating an adversarial relationship,” said Paul Huszar, president, VetCor LLC, which provides new careers for military veterans no longer on active duty.

Huszar said his business relies on referrals from carriers, which he said are “usually legitimate claims from people who need help.”

He said his company has found itself becoming an advocate against AOB abuse, including letting carriers know if they see abuse taking place.

“There have been a few incidents where we have been called to put a tarp on a roof and we get out there and there is no damage. The customer says, ‘someone told me to put a claim in and I’ll get a new roof.’ If we see that we call the insurance company and let them know something smells funny. We represent consumers if we think it’s fraud and we represent carriers if they are getting screwed,” he said.

Huszar said all affected parties need to work together in fighting AOB abuse, and managed repair and preferred vendor programs are just one option until lawmakers take up the issue.

“The companies have to do something to combat uncontrollable rising claim costs from AOB,” he said. “But frankly, without legislation this problem is not going to be solved.”

Companies are also looking at premium discounts for customers who take proactive measures to protect against water damage, such as outfitting their homes with water damage protection systems.

Neil Schwartzman is the owner of the Coral Gables, Fla.-based company H20 protection, which sells PipeBurst Pro water damage prevention technology.

The Whole Home Water Detection product works by detecting when a pipe bursts and shutting off the main water supply almost immediately to prevent water damage.

Schwartzman said there has been increased interest from carriers in the last several months as they try to find new ways to reduce AOB losses.

He said several dozen, mostly high-value homeowner carriers, already offer incentives to have this type of a program.

He is currently working with several Florida insurance carriers seeking approval from regulators to offer premium discounts when a system is installed.

“If the [water damage protection] discount was available to all in Florida, then systems would be installed [and] the number of water damage claims would be reduced significantly,” Schwartzman said.

What Comes Next?

The industry and regulators agree that substantial progress has been made in educating on the abuse. Commissioner Altmaier said this year’s visibility and media attention has put his office in a good position for proposals to be heard during the 2018 legislative session.

McFaddin said the industry did an “impeccable job” staying on message this session and supporting the OIR and Citizens proposal, which died shortly after being introduced in a Senate committee.

Even though the reforms failed, McFaddin said the industry learned that working together is an effective strategy and that needs to continue.

McFaddin added that at least next year the industry won’t have to “waste time educating the legislature” about the abuse because it is now widely known and watched.

“Will we get something done for sure, 100 percent?” she asked. “I can’t say that, but I am hopeful – optimistically hopeful.”

Former CFO Atwater said the industry did a better job of getting its message out this session, but there is still “tremendous rate sensitivity” among consumers.

The industry, he said, has not effectively communicated why AOB abuse is translating into higher rates and, until then, consumers will not support legislative efforts.

“I think consumers believe that the rates come [because] the insurance company just wants more rates and the government just keeps giving it to them. I don’t think that most consumers understand that these losses are required to be built into the rate filing. And they’re going to be granted,” he said.

He urged the industry to share with the public “the actual evidence that it has in its databases” on the magnitude of the losses that are being built into rates.

PIFF’s Carlson said carriers’ data is out there through OIR’s data call done in 2016, and Citizens plethora of public information on rising losses, claims and litigation. He said some lawmakers have accused the industry of not being transparent to avoid fixing the issue.

“What else do you need us to give you that you don’t have? I fear that is a political request and not a policy request,” he said.

Until the next session, the industry and regulators say all they can do is continue to beat the drum about AOB abuse and take steps to protect company solvency and their policyholders.

“I do believe there is light at the end of the tunnel,” Altmaier told Florida Cabinet members. “I do believe there are ideas on the table that not only maintain consumer protections and their ability to have their claims paid, but also protects their ability to pay affordable insurance rates and shop insurance products across a wide range of carriers.”

The Southeast has seen its fair share of natural disasters and flooding in the last several years, including two hurricanes in Florida last year – the first hurricanes to hit the state in more than a decade. But none of these events have come close to reaching the potential impact a serious storm surge event could have on the region.

According to CoreLogic’s 2017 Storm Surge Report, which examines risk from hurricane-driven storm surge for homes along the Atlantic and Gulf coastlines across 19 states and the District of Columbia, as well as 86 metro areas, the total reconstruction cost value (RCV) in the event of a hurricane storm surge inundation in these regions would be more $1.5 trillion.

The total number of homes that could be affected along the Gulf and Atlantic coasts, defined by CoreLogic as the 3,700 miles of coastline extending from Maine to Texas, is nearly 6.9 million. In the Gulf Coast region – running from Texas through the tip of South Florida – almost 3 million homes are at risk with a total RCV of $593 billion. The Atlantic Coast accounts for 3.9 million homes and a RCV of more than $970 billion.

To estimate the value of property exposure of single-family residences, CoreLogic uses its reconstruction cost valuation (RCV) methodology which estimates the cost to rebuild the home in the event of a total loss. The reconstruction cost estimates more accurately reflect the actual cost of damage or destruction of residential buildings that would occur from hurricane-driven storm surge since they include the cost of materials, equipment and labor needed to rebuild and also factor in geographical pricing differences. Actual land values are not included in the estimates. The values in this report are based on 100 percent, or total, destruction of the residential structure.

The Southeast coastal states CoreLogic examined in its report of Alabama, Florida, Georgia, Mississippi, South Carolina and North Carolina, account for at least 3.6 million of the 6.9 million homes at risk along the Gulf and Atlantic Coast.

Unsurprisingly, the majority of those homes – about 2.7 million – are in Florida, which carries a whopping $536 billion reconstruction cost value, the highest of any of the 19 states.

The Southeast also accounts for nine of CoreLogic’s top 15 metropolitan areas at greatest risk of storm surge, with six of those being Florida cities.

It’s common knowledge that Florida is at risk of hurricanes, but the state has gone many years without experiencing significant damage from a major storm. Dr. Tom Jeffery, senior hazard scientist at CoreLogic, said that can often lead to “hurricane amnesia,” among citizens and municipalities and that can impact whether they are adequately prepared for when a big storm event does occur.

“This report is about making people aware of the fact that we are in hurricane season. We don’t know when or where they will happen, but they have the opportunity to affect the coastal U.S. and we want to put it on people’s radar,” Jeffery said. “A lot of these areas don’t realize what the risk is once you are outside the 100-year flood plain.”

He added that many people in these communities don’t realize what their storm surge risk is, outside of the 100-year flood plain.

“Large hurricanes especially can really push surge water quite a bit inland, but after big events people say they didn’t realize their property was at risk,” Jeffery said. “Hopefully, this information can give them the incentive to go to their insurer and find out if they are in a high-risk area and adequately prepare.”

CoreLogic included a probabilistic storm surge analysis focused on Florida in this year’s report, with specific emphasis on storm surge from Hurricane Matthew, which changed course before making landfall last year, sparing the state from the worst possible scenario. The goal of probabilistic modeling of hurricane perils, CoreLogic’s report said, is to provide risk managers with greater insight as to what could happen in order for them to better plan and manage their businesses.

“Probabilistic loss provides an evaluation of the specific amount of damage that could be expected from a single storm event or a set of simulated events, called probabilistic events, which are informed by historical storm records that are similar in size and scope,” the report states.

This analysis focused on the historical storms in Florida that have caused storm surge damage beginning in 1900, and how Hurricane Matthew compares. Of the 97 catastrophic hurricanes in Florida since 1900, Hurricane Matthew ranked No. 19 among historical storm surge events. CoreLogic said the storm surge damage from Matthew made up less than 10 percent of the total financial loss, with the rest being a result of wind damage.

Number one on the list was the “13^th hurricane of 1944″ (before hurricanes were given actual names), which caused $15 billion worth of damage on 471,000 homes in today’s terms. Hurricane Andrew, which hit in 1992, was ranked No. 4, and Wilma, which hit in 2005, was ranked No. 15.

Though Florida’s first hurricanes in 11 years were not as devastating as they could have been, the two storms that did occur – Hurricane Hermine, which hit in September of 2016, and Hurricane Matthew – caused more than $3.2 billion combined in damage to Florida.

Jeffery said the state got lucky last year. He added that awareness is key to minimizing loss in the future, and the modeling company has seen an increased interest in information and proactive mitigation discussions this year.

“Florida went a long stretch without an impactful landfall hurricane and last year was an eye opener, an awakening to get people to think about it since we don’t know when that next one is going to come ashore,” he said.

Private auto net incurred losses are set to hit a new record in 2017, according to a report by S&P Global Market Intelligence.

S&P projected that auto losses will increase by almost 7% in 2017, hitting about $154 billion. That number reflects a skyrocketing volume of costs and claims. Auto losses also spiked by 13% last year, prompting many carriers to pursue rate increases, S&P reported. Those rate increases may pinch customers’ pocketbooks in the near term, but they’re expected to begin increasing industry profitability.

“Though underwriting results in many business lines will deteriorate in 2017, we expect the P&C industry to produce only a modest underwriting loss for the year,” said Tim Zawacki, senior insurance research analyst for S&P Global Market Intelligence. “Needed rate increases for the personal and commercial auto businesses will begin to positively impact industry results in 2017. We expect additional improvement in those lines to take place over the next several years.”

The industry experienced historically high loss ratios last year, S&P reported. Those losses – combined with more time spent on the road by motorists – should continue to push auto insurance premiums higher.

Among the other findings from S&P’s recent US Property & Casualty Insurance Market Report:

• Soft market conditions continue to prevail in most non-auto lines, which means competition remains fierce. S&P projected only slow improvements in investment returns from the historic lows of 2016.
• S&P Global Market Intelligence predicts an industrywide combined ratio of 100.7% across business lines this year. It also projects growth of 4.3% in direct premiums, reflecting higher auto rates.