Citizens Insurance juggles incentives in managed repair program

The directors of Florida’s property insurer of last resort voted Wednesday to recalibrate consumer incentives to discourage policyholders from ceding damage claims to third parties, including attorneys and contractors.

Under new incentives, Citizens Property Insurance Corp. would pay for initial repairs to non-weather-related water damage — removing any water and drying out the property. These costs would not be subject to the policyholders’ deductibles.

Citizens would pay up to $3,000 or 1 percent of the policy coverage.

Additionally, customers would be asked to accept a Citizens-approved contractor to make permanent repairs. These costs would be subject to any deductibles.

When they first unveiled the managed repair program in March, Citizens staff planned to offer breaks on premiums and deductibles to encourage policyholders to participate.

Further research, including consultation with private insurers, suggested that wouldn’t work, said John Rollins, chief risk officer for the state-run insurer.

“The market research indicated that these were not terribly effective incentives,” he said.

“There was one big take-away,” he said. “In order for the program to succeed and truly intercept the problems with AOBs and litigation, and lower the costs, it needed to be very consumer-friendly and change direction a little, and give the consumer the option to participate. Not only at the time of the policy being written, but at and after the time of loss.”

AOB stands for assignment of benefits contracts, through which policyholders sign away claims to contractors or other third parties in exchange for quicker repairs. According to Citizens and other critics, these contracts can result in more expensive repairs, costly litigation, and even fraud.

The problem has centered on claims involving internal water leaks, but is beginning to involve storm damage, now that Florida has suffered its first hurricane landfall since 2005, Citizens staff told company directors during the board’s quarterly meeting this week.

The Florida Office of Insurance Regulation on Sept. 18 approved a 6.4 percent average statewide premium increase on Citizens’ policies, chiefly because of AOBs and litigation attending insurance claims.

Consequently, Citizens has been trying to persuade policyholders to give its experts first crack at inspecting damage.

Under the new plan, “we take care of the emergency before we know whether the ultimate loss is covered, and regardless of the level of deductible the consumer might otherwise be responsible for,” Rollins said.

Initially, Citizens will offer the incentives to site-built homes occupied by homeowners or tenants. “But we may contemplate other lines, such as condo policies, in the future,” he said.