It would be one thing if customers dissatisfied with the price of their Citizens Property Insurance policy could drop their coverage and easily find an affordable alternative. But eight years after Florida faced the first of two multihurricane seasons, the insurance market remains a mess. That makes it incumbent upon the state to ensure that the state-run insurer operates fairly and transparently.
That hasn't been the case with the company's unfair system for establishing replacement costs for properties, which inflated premiums. Consumers have had few avenues — if any — to challenge a computer-generated calculation, unlike with most private insurers. Only after 5 p.m. Friday did Citizens announce a revised policy that it will consider new appraisals and contractors' estimates for reconstruction in setting insurance values. That's a welcome about-face.
As Tampa Bay Times reporters Susan Taylor Martin and Jeff Harrington reported last Sunday, independent insurance agents were told last year that their customers need not get an independent appraisal if they did not agree with Citizens' estimate of replacement costs — a key factor in setting customers' annual premiums. The company relied uniformly on the computations from software it acquired in 2010, 360Value, which relies on variables put in by insurance agents.
The result for Citizens' customers: Homeowners — who are required by lenders to carry property insurance if they have a mortgage — appeared to have no recourse to effectively challenge the software's assumptions, no matter how nonsensical. Martin and Harrington, for example, found Citizens' software claimed it would take $124,000 to replace an 840-square-foot home in New Port Richey in Pasco County — $35,000 more than a private appraiser concluded. The cruelest irony: The homeowner owes less than $20,000 on the home she and her husband bought in 1979, but is continuing to work into her 80s to make ends meet.
As state Sen. Mike Fasano, R-New Port Richey, points out, such a scheme made all but moot a hard-fought bill passed in 2009 that capped Citizens' annual premium increases per dollar of coverage at 10 percent. If policies' baseline replacement calculation is higher, premiums can increase in tandem. And questions about whether software formulas are fair aren't new. Louisiana's attorney general sued the same software provider in 2007, charging that its software to estimate damage after Hurricane Katrina enriched insurers at homeowners' expense. But a judge dismissed the suit.
Citizens officials first contended they were trying to be good stewards for customers, who do not want to be underinsured after a storm. But Gov. Rick Scott and other Republican leaders have been vocal in their concern about the state's obligation — should Citizens fail to have enough assets to cover damage after a major hurricane — to recoup losses through assessments on all property insurance policyholders. Spoken or not, the tenor in Tallahassee has been clear for months: State leaders want that exposure diminished. But it shouldn't be done through an anticonsumer scheme.
In an ideal world, homeowner's insurance in Florida would be affordable and accessible. Customers dissatisfied with their policy could shop for better or cheaper coverage. But for huge swaths of the state, Citizens remains the only viable option. After their unfair practices on calculating replacement costs were exposed, Citizens finally saw the light. The revised policies to consider appraisals and contractors' estimates for replacement costs make sense. It won't solve the property insurance crisis in Florida or prevent premium increases for other reasons, but it's a significant step in the right direction.