TALLAHASSEE — Patricia Temple's annual insurance bill soared by more than $2,100 after an inspector knocked on her door this year. The bill came from Citizens Property Insurance Corp., and the inspector was one of thousands fanning across the state on Citizens' behalf, often with sudden and jarring results for homeowners.
The state-run insurer is using a massive home inspection program — along with dozens of coverage cutbacks and policy changes — in an aggressive campaign to bolster its bottom line and reduce its level of risk. The campaign — which has intensified at the urging of Gov. Rick Scott — has already cost homeowners hundreds of millions of dollars. And the pocketbook impact could easily reach the billions as more and more homeowners are affected.
For Temple, a 79-year-old retired librarian who lives alone on a fixed income, the premium hike is taking a large bite out of her limited budget.
"I was shocked and I called my agent," she said from her three-bedroom home in Coral Gables. "I've never had an insurance claim on anything."
Her insurance premium jumped from $4,882 to $7,028.
Temple is one of hundreds of thousands of Floridians who have already been slammed by Citizens' reinspections and other cost-hiking measures. As the insurer intensifies its plans to raise rates and reduce what it covers, the impact on Florida's fragile housing market and broader economy is being felt across the state.
A Times/Herald Tallahassee Bureau series will look at the effect of Citizens' reinspections and price hikes on homeowners, and the rocky relationship between Citizens' board of directors and the Legislature.
Executives at Citizens say the company is in a bind and has little choice but to raise its rates. It was created 10 years ago to be a haven — the so-called insurer of last resort — but it has ballooned to become the state's largest insurer, with about 1.4 million policies. Most of its risk is concentrated in the Tampa Bay area and South Florida, hazard-prone regions where many homeowners cannot find coverage in the private market. Its actions — including rate increases — affect the entire insurance market, impacting the cost of housing for nearly every Floridian, including those with private insurers.
"Citizens is too big," Scott has said repeatedly, citing numbers that paint Citizens as a huge potential financial liability for the state. At a Cabinet meeting last year, Scott told Citizens executives to shrink the company, and to do so quickly.
Citizens' board has responded, vowing to help Florida avoid the "hurricane taxes" that would be levied on most consumers if a major storm were to slam the state's highly developed coastline, draining Citizens' resources.
"There are things we have to do to make Citizens a strong safety net and not a hammock," said board member John Rollins, during a meeting last year.
He went on to acknowledge: "Some of it will be painful."
Critics, and a growing crop of litigants, say Citizens is pushing the bounds of what's moral — and what's legal — as it attempts to slim down. Homeowners in Pasco County filed a lawsuit this year claiming the insurer used a fraudulent software program to inflate the replacement cost of their homes, thus increasing their premiums. South Florida homeowners have sued Citizens over the inspection program, calling it a scheme to raise rates. Citizens has denied both allegations.
The state-run insurer is bound by a 2009 law that limits rate increases to 10 percent annually, but it has found several creative ways to raise premiums by 40, 60 and even 100 percent this year. A Times/Herald analysis of thousands of pages of company records and dozens of interviews revealed a fast-changing insurance market in which the 10 percent cap is becoming increasingly futile against a well-organized campaign to raise rates and reduce coverage.
The dirty word among Citizens policyholders — reinspections.
Through reinspections, higher estimates of replacement costs and new sinkhole-related charges, Citizens has raised premiums far beyond the 10 percent cap, taking in more money than ever before.
Though the company has been collecting billions of dollars in premiums during the past six hurricane-free years, Scott and Citizens' leaders say it remains severely undercapitalized. If a major hurricane hits the state and Citizens runs out of money, taxpayers will be on the hook to bail the company out through hurricane taxes.
Temple, and other homeowners like her, feel that they've already been hit with a massive hurricane tax, just without the hurricane. Citizens' flurry of policy changes has bred hundreds of millions of dollars in rate increases this year alone. Over time, the pocketbook impact on homeowners will likely reach into the billions.
Though Citizens has typically been governed by the Florida Legislature, its current multibillion-dollar campaign of premium increases and coverage reductions is being administered unilaterally by an increasingly ambitious board of eight unelected governors, at the direction of Scott.
Citizens' statewide program of home reinspections has led to an unprecedented stripping of insurance discounts worth millions of dollars. (Homes with hurricane-resistant features are eligible for "wind-mitigation discounts" on their insurance premiums.)
The reinspection of more than 200,000 homes has been a boon to the insurer's bottom line. In nearly 75 percent of cases, inspectors are able to find cause for stripping homeowner discounts, producing premium increases of $137 million.
That translates to more than $800 for each homeowner who loses so-called wind mitigation discounts due to a reinspection.
With the money from reinspections flowing in — and the 10 percent cap powerless to limit inspection-related premium increases — Citizens is rapidly ramping up the program.
"The return investment of this program so far has been about 300 percent," Citizens board chairman Carlos Lacasa told Scott at a Cabinet meeting in December. "We're looking forward to a very successful reinspection program."
'We have a problem'
Citizens launched the massive reinspection push under the premise that thousands of homeowners had received unwarranted discounts due to widespread fraud. However, only a handful of cases have been referred to Florida's Division of Insurance Fraud, and convictions have been scarce. (More than 700,000 policies receive mitigation credits, but only three people have been charged with mitigation fraud since 2009, according to state data.)
Allan Schwartz of New Port Richey is convinced the Citizens' inspections are rigged against homeowners. Schwartz said the inspector who came to his home climbed into the garage attic, spent five minutes looking around, and came down saying, "We have a problem."
Though Schwartz had hurricane straps properly spaced in the attic, the inspector said he didn't have access to some of them because boxes blocked his view.
Schwartz, 63, who recently underwent double-knee surgery, said he wasn't able to go up in the attic. He said he urged the inspector to move the boxes but was told he wasn't allowed to move anything. Schwartz also shared the favorable results of a separate roof and wind mitigation inspection that had cost him $125.
But it was a moot point. The inspector had already made his call.
"He said, 'I'm going to put in my report that (the tie downs) weren't readily accessible,' " Schwartz said. "It was amazing how lazy the guy was and how critical he was of everything he looked at."
Consumer advocates are crying foul, too.
"Citizens has gone from incentivizing mitigation discounts to implicating homeowners for virtually nonexistent, undocumented fraud," said Sean Shaw, founder of Policyholders of Florida. "This isn't just inconsistent, it's harmful to policyholders and our economy. It's nothing more than a wild goose chase and another excuse to try to jack up our rates."
In an interview, Lacasa, the Citizens board chairman, defended the inspections program as a necessary initiative to verify that homeowners who are receiving discounts actually deserve them.
In many cases, inspectors have found discrepancies not because of fraud, but because the state has made rule changes that make it more difficult to qualify for discounts.
In 2010, the Office of Insurance Regulation changed the definition of a "hip-roof," the pyramid-shaped roof style considered especially wind-resistant by experts. Previously, a roof whose perimeter was at least 50 percent hip-shaped was considered a hip roof. The rule change — pushed for by the insurance industry — required the roof perimeter to be 90 percent hip-shaped.
Thousands of homeowners have seen their discounts eliminated as a result of the rule change. Fair Insurance Rates in Monroe, a Florida Keys-based group, has bashed the change as "arbitrary" and "another end-run around the 10 percent premium cap increase."
Temple, the retired librarian, said the combination of the roof rule-change and the reinspection resulted in her losing $1,326 worth of discounts.
Temple's roof is mostly hip-shaped but also has a small flat portion covering a screened porch between her kitchen and back yard. She said an inspector came to her house and determined that the roof over the screened porch disqualified her from receiving a "hip-roof" discount.
She later hired a private inspector to help her appeal Citizens' decision.
"We do find a lot of discrepancies with Citizens' inspections," said Andres Diaz, an architect with A-1 Engineering Inspection Services, which handled Temple's private inspection. "They're doing about twice as many inspections each day as you would expect, and there's no possible way they can do it right in that amount of time."
Citizens' new president, Barry Gilway, said the company has quality assurance measures to make sure reinspections are done correctly.
"The public perception of this program is critically important to us," he said.
When an inspector cannot find evidence to validate the discount, the onus is on the homeowner to prove that he or she deserves the previously awarded credit. In many cases, if a homeowner can't produce decades-old documentation showing that the home has certain wind-resistant features, Citizens removes the discount, resulting in a premium hike.
Company leaders have openly stated that wind-mitigation discounts — which were doubled in 2007 under Gov. Charlie Crist — are an impediment to Citizens' efforts to raise revenue. About half of all Citizens' policyholders receive the discounts, with the aggregate total topping $1 billion per year.
"We have $3 billion approximately in direct premium today, but we're leaving $1 billion of potential revenue on the table as a result of wind mitigation credits," Lacasa told Scott during a 2011 meeting.
The company recently expanded the inspection program to condo buildings, and plans to inspect thousands of buildings across the state.
As premiums rise, Citizens has also drastically reduced what it covers, leaving some homeowners more exposed.
Citizens has dropped coverage for carports and screened enclosures, reduced its personal liability coverage from $300,000 to $100,000 and is pushing to limit water damage claims to $15,000. Deductibles have also been significantly increased for several types of coverage.
Those and other changes have slashed billions of dollars from the insurer's exposure load, and will force homeowners to pay more if a hurricane hits.
Homeowners, like Meredith Donly, are wondering why their rates and deductibles keep going up, while the quality of their coverage declines.
Donly, who owns property in Hollywood, said the rate increase she got from Citizens this year was the last straw.
"I couldn't even tell you what the bill is for this year," she said. "I took one look at it, and I burned it."
Times staff writer Jeff Harrington contributed to this report, which also contains comments from members of HeraldSource, part of the Public Insight Network. To learn more about the network or to join, visit miamiherald.com/insight. Toluse Olorunnipa can be reached at firstname.lastname@example.org and on Twitter @ToluseO.