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Consumer Law: ThePopTort
Florida Homeowners Insurance Blues
By Joe Consumer
Back in 2006, Americans for Insurance Reform, a project of the Center for Justice & Democracy, wrote a study called At The Tipping Point: The Homeowner Insurance Mess In Florida And How To Fix It, prompted by the abandonment of private insurers from the state as they dumped risk to guarantee even higher profits, resulting in the massive cancellation of homeowners policies in that state. (Not that Florida is alone. Just last week, State Farm announced that it will no longer renew home insurance for 11,000 Texas homeowners living near coastal areas.)
AIR noted back then:
Hundreds of thousands of policyholders in high-risk areas [were being] dumped into the post-[Hurricane] Andrew state-run ?insurer of last resort.? The company, Citizens Property Insurance Corp (the result of a merger between Florida Windstorm Underwriting Association and Florida Residential Property Joint Underwriting Association) has seen astronomical rate hikes. And while policyholders in high-risk areas are dumped into this system, private insurers keep the lower risks for themselves. Said [Bill Newton of the Florida Consumer Action Network], ?The state high risk pool takes the windstorm risk in those areas, and the insurers just take the balance of the risk [in less risky areas]. That deprives the state of the profits from the more lucrative part of the business.? Citizens now faces a $1.8 billon deficit.
Look, we have some sympathy for the position the private insurance market has put Citizens in. If you read Tipping Point, you will see very innovative solutions to this mess. But our sympathy only goes so far. Wait ?til you hear this.
Apparently, according to a lawsuit just filed against Citizens (asking for class action status), Citizens ?uses a computer program called Value360 to calculate the ?replacement cost? for homes if they are damaged or destroyed, a figure that determines how much coverage a homeowner has to buy on his house. According to the lawsuit, the program churns out cost calculations that are as much as double what the homes are actually worth ? resulting in skyrocketing premiums.?
Joe Freitas, a New Port Richey man who is the lead plaintiff, bought a house for $109,000 in 2011. When he and his wife closed on the property, they had a policy that covered $139,000 in damages and cost $917 per year. But 30 days later, their insurance agent said Citizens would not insure them unless they paid for a $236,700 policy ? with a yearly premium of $1,846. "It changed the way we were going to live our lives," Freitas, 44, said at a news conference.
Ruth Lauro, an 82-year-old Citizens' policyholder also from New Port Richey who lost her job in October, said she's in the same boat. Her house, which attorneys said was worth $50,000, was given a replacement value of $125,000. Lauro, whose only income is $637 a month from Social Security, said she's having trouble making ends meet. "I'm tired of eating rice," she said.
The suit is filed against both Citizens and Utah-based Xactware Solutions, which created the Value360 program. What else do we know about this Value360 program?
Well, as reported by the Orlando Sentinel over the weekend,
Value360 is an estimating software program sold by Insurance Services Office. Rebuilding costs determine how much coverage a homeowner has to buy for the main structure of the home, the largest part of a typical policy.
Mike Fulton, an assistant vice president of the ISO subsidiary that produces 360Value, said the scrutiny is welcome: "We are confident this review will ... show that 360Value is the most closely aligned with the actual insurance-repair market."
Americans for Insurance Reform, a national coalition of consumer advocacy and nonprofit groups, recently produced a report that criticized regulators for allowing insurers to base rates on data from ISO, alleging it's "industry-controlled" because it was formed by the industry before spinning off into a private company.
(That AIR report would be here.)
Citizens is supposed to offer ?affordable property insurance? to homeowners when private insurers are unwilling to do. Clearly, like the rest of the insurnce industry, Citizens has lost its way.
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