The growing problem of out-of-control water losses, fueled by assigned benefits, is being fought on multiple fronts. Even as Senator Hukill seeks legislative solutions to this growing problem and private companies seek policy forms that address the issue, Citizens Property Insurance Corp. continues to move forward with its own effort to bring its water loss claims under control.

Citizens has adopted a multi-pronged strategy to address the spike in non-weather water claims, with Phase I identified to include “product and policy language changes to optimize the balance between responding to legitimate water damage covered in each form, and limiting abusive or fraudulent claims that drive up rates for many Citizens customers, even those who have not filed claims.”

At its December 9th meeting, the Citizens Board voted to implement several modifications to its current policy language relating to coverage for water losses, approving the following changes:

  • The introduction of a special coverage amount which would be available immediately for emergency services and temporary repairs performed prior to the report of loss. This coverage would be capped, and while the Board did not approve a specific amount, the recommendation identified $2,500 – $5,000 as being a target range. Additional payouts above the cap would be available if approved by Citizens.
  • Permanent repairs that are completed prior to allowing Citizens to inspect the damage would be excluded from coverage.
  • Losses would be required to be reported within 72 hours of when the policyholder knew or should have known that the loss occurred.
  • A clear statement that the policy covers only direct physical damage, and does not include coverage for cosmetic or aesthetic differences.
  • The introduction of an Additional Coverage with a specific limit to restore uniformity of appearance with adjacent undamaged areas. The Board did not approve a specific amount for this limit, but a $5,000 – $10,000 range was recommended.
  • In order to avoid demands for coverage for entire plumbing systems and collapsed sewer lines, policy language would be modified to include: a limitation that coverage for tear out and replacement is available only to repair the portion of the system that caused the loss; an expansion of current policy language to exclude collapse of underground pipes due to deterioration resulting from age or condition; a clarification that if a system is repairable by clearing blockage, coverage will only be provided for access required to complete repair; a clarification of the original policy intent to address only the cause of the loss and not the need to replace the entire system because of its age or condition.

The final language implementing these proposed changes will be incorporated into Citizens’ policy forms to be submitted to the Office of Insurance Regulation. If OIR approves the language, it would take effect in mid-2016 for new policies. For existing Citizens’ policyholders, it would take effect upon renewal.

If Citizens’ form changes are approved by OIR, it might be a helpful guide for private industry. Recently, OIR has rejected some private insurers’ efforts to solve the problem through policy form changes, and has been affirmed by the First District Court. The approach by Citizens takes a different direction, so that may be reason for cautious optimism for OIR’s approval.

Even if OIR approves its filing, however, Citizens’ leadership recognizes that statutory changes are still critical to provide a broader solution. Barry Gilway, Citizens President, CEO and Executive Director was quoted in a recent Citizens’ release as saying that Citizens’ policy changes “are necessary first steps to keep premiums as low as possible while protecting our policyholders who have legitimate claims. However, they in no way fix the assignment of benefits cost-driver that must be addressed by statute.”