News Source: South Florida Sun Sentinel
Author: Ron Hurtibise
Date: July 13, 2021
More customers of state-run Citizens Property Insurance Corp. could be required to let inspectors scrutinize their homes for unacceptable risks — and shell out high costs to fix those problems.
Consumers who can’t afford to make the fixes won’t qualify for Citizens coverage and could be left with nowhere to turn. Inspections could identify thousands of uninsurable properties, Citizens officials said.
Citizens is proposing to increase the number of annual home inspections it conducts from 5,205 in 2020 to 90,695 by 2025. The increase is needed, the company says, to enable the company to more accurately set prices for its policies and reduce the number of claims that customers file.
Increased inspections would focus on the age and condition of roofs, electrical systems, plumbing systems, air conditioning units and hurricane protection, according to a document detailing the proposal, which the Citizens Board of Governors will consider Wednesday.
For customers in South Florida, where homes are older, more inspections will undoubtedly lead to higher rates and possibly more customers being rejected when they apply for new coverage or policy renewals, unless they have enough money to make the required repairs.
Currently, Citizens inspects between 2% and 3% of properties it insures, compared to 50% of properties insured by private market companies. If the contract is approved, between 9% and 11% of properties would be inspected each year by 2025.
Citizens has been growing rapidly in recent months as high claims and litigation rates have prompted private-market insurers to stop writing new business. Citizens has become the most affordable option for many because state law has capped the company’s annual rate increases at a statewide average of 10% compared to much larger increases levied by private market insurers over the past two years.
Officials have debated numerous ideas for making the company less attractive, including eliminating the rate cap.
Citizens CEO Barry Gilway and Board of Governors chairman Carlos Beruff said they hoped an increase in inspections would enable the company to decrease its policy count — currently at 640,000 and expected to increase to more than 700,000 by the end of the year. About 54% of Citizens policies are in Broward, Palm Beach or Miami-Dade counties.
Some of the decrease would result from inspections identifying properties with low risks of filing claims. Those properties would be attractive to private-market insurers participating in Citizens’ depopulation, or “take-out,” program, which is intended to prevent Citizens’ policy count from growing too large.
But more inspections would also identify properties with issues that would make them ineligible for Citizens policies.
Although Citizens, as the state’s insurer of last resort, was created to provide insurance to homeowners who cannot find affordable coverage in the private market, it is allowed to reject properties that fall short of current building codes and other state-approved criteria.
In a meeting Tuesday of the company’s Actuarial and Underwriting Committee, Gilway and Beruff suggested conducting even more inspections than what’s called for in the proposed $20.1 million contract with five outside vendors.
“I would rather do more inspections if it gives us results we’d like to get — that is to insure fewer properties and only take the ones required by law,” Beruff said. Later, he said he wanted to give Citizens “ammunition to get us out of hundreds of thousands of policies.”
Gilway said he wanted to target properties for inspection that would be most likely to fall short of qualifying for coverage.
Ryan Papy, president of Keyes Insurance in Palmetto Bay, said he supports increasing inspections if it would persuade more private market carriers to take over Citizens policies. In the past, private carriers were hesitant because of a lack of specific information.
More frequent inspections also would help private-market insurers identify properties they could offer to take out of Citizens as part of the company’s “depopulation” program.
But he acknowledged that increasing inspections could be Citizens way of reinforcing the attitude of “we don’t want you.”
“In many cases, that is correct as they should be the carrier of last resort. However, in this market the insureds in many cases have no other option.”
Paul Handerhan, president of the Fort Lauderdale-based Federal Association for Insurance Reform, a consumer-focused watchdog group, said identifying ineligible properties will force some policyholders to make difficult choices between making repairs or trying to find coverage elsewhere.
But he added that forcing those property owners to bring their homes into compliance with current codes would reduce claims that everyone else has to pay for in the form of higher rates.
“You can make the argument that those people should be flagged,” he said.