Capitol Preferred Insurance Co. blames litigation fraud and abuse, as well as recent hurricane losses, for its decision to increase rates on Florida property owners by more than 36 percent this year and to shed more than 20,000 policies.
The company, which recorded a total of $48 million in losses during the years 2017, 2018 and 2019, saw its request for the double-digit rate hike approved by the Florida Office of Insurance Regulation earlier this year. Two other companies, Edison Insurance Co. and Velocity Risk Underwriters, were also given the green light to boost rates by more than 20 percent.
“The fraud and abuse taking place in the state of Florida has caused numerous companies to merge (or) go out of business and astronomical reinsurance rates,” Capitol Preferred said in a statement in response to questions posed by the Florida Record. “... The effects of the fraud and abuse will ultimately affect all policyholders in Florida as rates continue to rise.”
The move to cancel the more than 20,000 policies was the result of the loss ratio of the policies combined with the current reinsurance rates, the company said. The practice of reinsurance allows an insurance company to transfer a share of their risk portfolios to other parties, leading the insurer to reduce its likelihood of paying out larger amounts in claims.
2017’s Hurricane Irma led reinsurers to experience their biggest losses in recent years, according to the company’s statement. Fraud and abuse associated with Hurricane Irma exceeds that of Hurricane Michael, the category 5 system that slammed the panhandle in 2018, according to Capitol Preferred.
The state’s insurers expressed relief with the passage of state legislation last year that reformed the assignment-of-benefits (AOB) rules for property insurance claims. But Capitol Preferred said AOB abuse was just the tip of the iceberg.
“While the AOB abuse hasn’t been eliminated, the focus has shifted from AOB to first-party lawsuits,” the company’s statement said. “Unfortunately, attorneys, roofers and water mitigation companies have bad actors that have created a profitable industry on the backs of Florida policyholders. These bad actors are taking advantage of policyholders’ rights and the premium they pay to make a profit.”
The changes Capitol Preferred initiated were crucial to its ability to navigate dicey market conditions as well as Florida’s litigious environment, the company said.
“There isn’t a reinsurance model that can predict the fraud that has taken place,” the Capitol Preferred statement said. “The state of Florida desperately needs tort reform to address the fraud and abuse and the bad actors.”
The coronavirus pandemic has also had a direct impact on the reinsurance market and the financial market in general, the company said, as shutdown orders have strained the financial resources of individuals and businesses alike.
“Coronavirus certainty played a role in rates this year,” Capitol Preferred's statement said.