Blog: Miami lawmaker says Citizens Property Insurance Corporation should cut millions in legal costs before raising premiums

Jan 4, 2012

The following article was posted to the House Keys blog in the South Florida Sun Sentinel on January 4, 2012:

Miami lawmaker:  Citizens Insurance should cut millions in costs before raising premiums

By Julie Patel

Citizens Property Insurance spent more than $2.4 billion over five years on legal costs for claims.

That’s according to information obtained by Rep. Frank Artiles, R-Miami, who criticized the state-run insurer for fighting claims, saying it’s “subsidizing the legal community.”

In a letter to the Sun Sentinel, Artiles said that Citizens’ should not be spending so much of policyholders’ premiums on litigating claims because it’s “unsustainable and will bankrupt any private or public company.”

Artiles, a public insurance adjuster, appraiser and general contractor, said lawmakers should direct Citizens to lower its operating expenses before it implements plans to lower its risk by reducing coverage options and increasing premiums; continues increasing policyholders’ premiums based on its higher estimates of the cost to rebuild homes; and moves policies to less regulated insurers under new legislation.

Citizens spent $2.4 billion from 2006 to 2010 on legal payments made related to claims, including for lawyers hired by the insurer and policyholders. That’s more than 40 percent of the money it has saved up over the years for its claims-paying reserves. The legal costs declined every year, from a high of $1.4 billion in 2006 – after the rough 2004 and 2005 hurricane seasons – to $143 million in 2010, according to an analysis of the data.

Nearly all Floridians are subject to paying fees to offset Citizens’ deficits after a major hurricane.

Citizens Spokeswoman Christine Ashburn said that’s why it is important that the insurer doesn’t overpay claims and pays “the proper amount based on the coverage provided under the insurance policy.” “All but a small percentage of Citizens claims are paid without the need for litigation,” she added. “For claims where disputes do arise, they are based on the specific facts of the individual case.”

It’s good for policyholders when insurers scrutinize suspicious claims. “Sometimes insurers need to deny claims and litigate denials for the good of all other policyholders, who otherwise would be paying for phony claims through their premiums,” Michael Carlson, executive director of the Personal Insurance Federation of Florida, wrote in an email.

Citizens employees said in recent meetings that a large portion of its legal claims expenses in recent years went to investigating sinkhole claims.

An explosion of sinkhole claims, including many that are inflated or fraudulent, is creating a new insurance disaster in Florida, according to stories this week by the Tampa Bay Times.

The paper reported that an engineer who was supposed to oversee a sinkhole repair job rarely showed up; cement trucks left a property nearly full instead of using the grout to fill sinkholes; and a contractor joked about what he considered a fraudulent job that paid him hundreds of thousands of dollars for a sinkhole claim. “It was a scenario allegedly repeated time and again at homes throughout Florida’s ‘sinkhole alley’ from Orlando to Tampa Bay,” according to the paper.

Florida lawmakers passed a sweeping property insurance bill last year aimed in part at reducing sinkhole claims costs, including those for inflated or fraudulent claims. But insurance experts say it will be years before they know how effective the law is; Provisions of the law are expected to be fought over in courts across the state as insurers and policyholders’ representatives start interpreting the new restrictions.

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