As of February of 2018 Citizens Insurance Company implemented a policy that will be able to force commercial and residential policyholders to limit their total payout to only $10,000 for all non-weather related water losses unless they use the Insurance Company’s pre-approved contractor. This figure is intentionally very low, as many claims involving water losses often cost much more to repair.
Citizens insured 118,468 home and condo owners in Broward, Palm Beach and Miami-Dade counties and 194,088 statewide at the end of 2017, according to data compiled by the state.
By forcing policyholders to use carrier-preferred contractors. Property owners with damages in excess of $10,000 will be unable to vet and select the contractor of their choice. This can only incentivize Insurance Carrier’s to negotiate deeply discounted rates from their selected preferred vendors. These contractors will always be motivated to comply to the insurance companies in order to maintain their preferred status with them. It is no surprise that Citizens and other insurance carriers would seek to impose such a measure in order to keep their claim payouts as low as possible.
The insurance company is responsible to bring the insured back to pre loss condition, but this goal for keeping costs as low as possible creates a significant conflict of interest. This naturally leads to issues involving low quality work and construction, and with no other recourse property owners would have to resort to litigation. This will significantly delay repairs for property owners. Even though the Insurance Carriers claim this $10,000 cap is meant to reduce premium costs we have yet to see that come into effect. With the implementation of this new rule, Florida property insurance carriers will reap significant financial benefits at the expense of their policyholders, who will continue to pay some of the highest property insurance rates in the country.
In response, the state’s lawmakers should enact legislation during next year’s session to ban caps for claims by policyholders who choose not to work with their insurer’s preferred contractor. The $10,000 damages cap will effectively green light the underpayment of water-loss claims in an effort to maximize insurers’ profits. Florida property owners should encourage their state senators and representatives to take legislative action.
Customers of other insurance companies will likely face similar caps since Citizens’ changes were approved, and industry officials predict other companies will adopt Citizens’ revisions as their own.
Other major insurers with managed repair networks are Florida Peninsula and People’s Trust. A spokeswoman for People’s Trust last month said her company would explore Citizens’ revisions, while Florida Peninsula’s CEO said it would be premature to discuss “future actions we may or may not take” related to the Citizens changes.
Being a State Run Carrier Citizens is barred by law from increasing rates more than an average of 10 percent a year. So the company must find a way to absorb increased costs, and reducing coverage is about its only option.