A steady drip usually signals bigger trouble, and this is no exception. Insurance claims and lawsuits for water damage are climbing, and the mess is spreading from South Florida to Tampa Bay. That means trouble for private insurers and the state-run Citizens Property Insurance Corp. And that means trouble for homeowners facing rising property insurance rates and the possibility of being forced to switch insurers.
When there's water damage, there's often a broken pipeline. In this case, it's a broken system for filing and settling insurance claims under a process called assignment of benefits. As Citizens president and CEO Barry Gilway described it this week to the Times editorial board, here's the problem: A homeowner finds a water leak in his or her house and calls a repair company. The repair company asks the homeowner to sign a form that allows the repair company to deal directly with the homeowner's insurance company. For the homeowner, this sounds great: The repairs are made, the company deals with the insurance company to get paid and it's all good.
Except it's not good for the insurance company. Gilway says Citizens often doesn't get a chance to inspect the damage. It doesn't get a say in what repairs are made or supporting documentation for the repairs. It gets a bill, and it relies on a consultant to determine whether the bill falls within an acceptable range. That's like paying for car repairs without seeing the damage and knowing whether it needed a new fender or paint for a scratch.
Those aren't the only problems tied to the assignment of benefits system. Many homeowners don't realize that when they sign the form, they often allow the repair company to put a lien on their home if the company's costs aren't fully covered by the insurance payment. And if Citizens or other insurers fight the claim from the repair company in court, the insurer pays all the legal fees if it loses. That has led to a lucrative cottage industry for a handful of law firms.
The numbers tell the story. While the number of Citizens policies has dropped in South Florida, the frequency of water claims has risen by more than 50 percent since 2010. During the same period, the size of those claims has nearly doubled, to almost $20,000 in 2016. Other warning signs the system is broken: More than 6 in 10 water damage claims don't reach Citizens until 23 days after the damage occurred. Nearly half of the claims now go to court, and the number of claims submitted with a lawyer involved from the start has soared.
The problem stretches beyond Citizens. Florida-based insurers who took hundreds of thousands of policies out of Citizens are experiencing similar issues with water claims. That is a key factor in an insurance rating company warning this week that it will downgrade its financial stability rating of 10 to 15 companies. That could be a problem for thousands of homeowners whose federally backed mortgages require property insurance to be A-rated and who could be forced to find new coverage. And all of this means Citizens expects to add more than 50,000 policies this year after years of declines.
The Florida Legislature has avoided the assignment of benefits issue for several years, but now lawmakers cannot ignore the continuing rise in water damage claims and the serious consequences for homeowners and the insurance market. The system is ripe for reforms that would better protect homeowners and insurers. When homeowners let the repair companies deal with their insurer, they need to understand the risk, and the insurer needs the same rights as homeowners in dealing with the claims.